2019 Annual Report
1602 Tricont Avenue
Whitby, ON
Dream Industrial REIT’s strategy
is to invest in high-quality assets
and markets that provide stable
cash flow and net asset value growth
over the long term to its unitholders.
As of December 31, 2019, Dream
Industrial REIT owned 209 light
industrial properties totalling 21.9
million square feet of gross leasable
area across North America.
Following the European expansion and acquisitions
announced in January 2020, Dream Industrial REIT’s
pro forma portfolio comprises 263 properties totalling
26.3 million square feet.
Letter to Unitholders
2019 has been an incredible year for Dream Industrial REIT. We
made significant progress on growing and upgrading the quality
of our portfolio, while strenghtening our balance sheet. Industrial
real estate continues to be one of the most sought-after asset
classes globally and underlying fundamentals support continued
momentum for the foreseeable future. The Canadian national
industrial availability rate tightened further to 3.0% at the end
of 2019. This represents robust tenant demand as net absorption
of 25.6 million square feet outpaced over 22 million square feet
of new supply delivered during the year. We continue to see an
imbalance between supply and demand in the Greater Toronto
Area and Greater Montréal Area markets, leading to strong rental
rate growth of 21% and 13%, respectively, in 2019. With half
our portfolio in these two regions, our 2020 performance should
benefit from these strong leasing fundamentals. The U.S. industrial
and logistics sector remained healthy with availability rates at
or near historical lows. Demand for industrial product continues
to be driven by e-commerce and logistics users, which is driving
rental rate increases for well-located industrial space near major
population centres.
In 2019, we closed on over $370 million of acquisitions in Canada
and the U.S., which added 4.5 million square feet of gross leasable
area in our target markets including Ontario, Québec and the U.S.
In addition, during the second half of the year, we completed the
disposition of our Eastern Canada portfolio with proceeds being
deployed into higher quality assets that should generate strong
free cash flow and net asset value growth over the long term.
In January 2020, we announced our European expansion which
represents the next step in the continued evolution of Dream
Industrial REIT into a premier global real estate company. We
have hit the ground running on our European expansion and have
acquired, or are under contract to acquire, over $325 million
of high-quality light industrial and logistics assets in Germany
and the Netherlands. The European expansion presents an
unprecedented opportunity for Dream Industrial REIT to grow
and upgrade the quality of its portfolio with significant economic
benefits.
In conjunction with the growth in our portfolio, we have
significantly strengthened our balance sheet and have improved
financial flexibility to pursue our strategic objectives. Following the
close of acquisitions in our immediate pipeline and our February
2020 equity raise, our leverage will be ~30%, over 13% lower than
2018 and 18% lower than our leverage two years ago. With our
European expansion and debt strategy well underway, we are
well positioned to pursue an investment grade credit rating and
unsecured financings in 2020.
Our operational results are strong and our active asset
management strategies continue to be successful. We reported
strong comparative properties NOI growth of 4.1% for 2019,
reflecting significant rental rate growth in Ontario and Québec, as
well as higher occupancy in Western Canada. With the strength of
our markets, robust leasing activity and higher market rents, our
NAV per unit increased by $1.22 or 12% in 2019. With the recent
addition of Alexander Sannikov and Bruce Traversy to the team,
we have significantly increased our ability to acquire high-quality
assets in Canada, the U.S. and Europe, while focusing on asset
management strategies that will produce strong free cash flow
and net asset value growth over the long term.
Dream Industrial REIT has achieved significant milestones in 2019,
and is poised to capitalize on many opportunities in 2020 and
beyond. On behalf of our management team and our Board of
Trustees, I would like to thank you for your interest in and support
of our business.
Sincerely,
Brian Pauls
Chief Executive Officer
February 18, 2020
4770 Southpoint Drive
Memphis, TN
At a Glance*
26 M
GROSS LEASABLE AREA
(SQUARE FEET)
96%
COMMITTED OCCUPANCY
$2.9 B
GROSS ASSET VALUE
263
PROPERTIES
2360 Cornwall Road
Oakville, ON
Geographic Diversification*
Dream Industrial REIT owns and operates a global portfolio totalling
26 million square feet of well-located, diversified industrial properties
across North America and Europe. We have access to highly experienced
local investments and asset management platforms that have a proven
track record of long-term value creation.
Geographic Diversification by Investment Property Value*
11%
EUROPE
Our Portfolio by Investment Property Value*
40%
SINGLE-TENANT
59%
WAREHOUSE &
5960+
DISTRIBUTION14+
60%
MULTI-TENANT
14%
LIGHT
MANUFACTURING
27%
FLEX INDUSTRIAL
* Proforma $327 million of previously announced acquisitions in Europe and ~$152 million in Ontario and Québec.
21%WESTERN CANADA20%UNITED STATES33%ONTARIO15%QUÉBEC27
+
40
Our Values
Courageous ideas
Meaningful relationships
Fierce diligence
Social responsibility
These values provide the foundation for our
corporate culture – acting as a strong platform
on which to build sustainability into Dream’s
DNA.
About Our Sustainability
Reporting
To align with best practice sustainability
reporting, we have divided the information
across three areas — environment, social
and governance.
Sustainability
Focus on Sustainability
We focus on promoting
the highest standards of
corporate governance, social
responsibility and ethical
behaviour throughout our
organization.
Dream Industrial REIT has a responsibility
to manage and mitigate the overall impact
on the environment, and we believe that an
increasing focus on sustainability is imperative
to creating long-term value for our stakeholders.
Our sustainability strategy guides us on how
we run our business and how we manage our
environmental and social obligations, including
our brand, business risks and operations.
Sustainability is ingrained in our business and we
are focused on internal and external initiatives to
benefit all stakeholders. At the corporate level, we
have implemented industry-wide best practices
with strong governance and high ethical
standards. We have a diverse and experienced
Board of Trustees, with 75% independent
representation. We are a thriving, people-centric
organization where employees have the tools and
opportunity to create significant positive impact
professionally and on the community.
At the property level, we promote energy
efficiency amongst our tenants through
education and awareness including coordination
of energy audits with recommendations to
reduce consumption and costs. As part of the
asset management and investment processes, we
actively seek to incorporate energy management
initiatives into our capital plans. Sustainability
initiatives that reduce resource intensity or
increase building efficiency help to reduce
costs for tenants and help make our buildings
more leasable. Over the past several years, we
have undertaken lighting retrofit initiatives that
include replacing old, inefficient fluorescent
lights with either T5 lighting or LED lights. As
lighting is typically upgraded on tenant move-
out, we attempt to balance this initiative with our
expected lease rollover.
We also support the communities in which we live
and work through our charitable partnerships
and commitments. In 2019, the Dream entities
collectively donated ~$700,000 to charities.
In addition, Dream employees prepared and
donated over 1,300 shoeboxes to The Shoebox
Project for Women’s Shelters and ~450 gifts
through our Tree of Dreams.
Looking forward, we will continue to implement
strategies to build upon our sustainability
practices throughout our organization and
portfolio.
Environmental
Increasing
energy
efficiency in
our buildings.
Our sustainability practices are primarily focused on
energy efficiency throughout our portfolio; however, tenant
engagement is also a lever utilized to promote sustainability.
Our environmental initiatives include:
1
2
3
Increasing energy efficiency throughout
our portfolio.
Increasing tenant engagement.
Incorporating energy management initiatives
into our capital expenditures planning.
860 Marine Drive
Charlotte, NC
Resource Management
Real estate properties consume significant
amounts of resources. Resource use directly
and/or indirectly impacts profitability,
operating margins, tenant demand and
asset values.
Energy Management
Climate Change Adaptation
Real estate properties consume significant amounts of energy.
Energy efficiency impacts profitability, operating margins, tenant
demand and asset values.
Frequent or high-impact extreme weather events can lead to
higher costs (insurance, operating and/or capital expenditures),
potentially impact lender appetite and asset valuation over time.
Management process, controls and measurement
One of the key sustainability initiatives we have focused on is the
improvement of energy efficiency within the portfolio through
lighting retrofit projects, the utilization of renewable power to offset
grid consumption and the replacement of traditional roofing with
white/reflective roofs.
•
•
At December 31, 2019, seven of our properties utilized solar
panels covering 817,216 square feet.
Lighting retrofit initiatives include replacing old, inefficient
fluorescent lights with either T5 lighting or LED lights.
• We intend to incorporate sustainability into our investment
strategy. We have also prepared a detailed 10-year capital
plan which will incorporate new energy management initiatives
as properties are acquired.
Dream Industrial REIT is in the process of mapping all of its
properties against a comprehensive database of climate-related
and other high-impact extreme weather events.
Performance and progress to date
•
•
Only 0.2% of GLA is located in 100-year flood zone areas.
Dream Industrial REIT is in the preliminary stages of managing
climate change adaptation risks.
LEED Silver Certified
10555 Henri-Bourassa West
Saint-Laurent, QC
Tenants
Management of tenant sustainability impacts
Resource consumption, waste generation and other sustainability
issues (occupant health and safety) are often driven by the
activities of the occupant. However, real estate owners can exert
influence in a manner that may increase tenant demand and
satisfaction, decrease direct operating costs, decrease risks
related to building codes and regulations, and drive asset value
appreciation.
Dream Industrial REIT promotes energy efficiency among its
tenants through cost recovery clauses embedded within leases,
in addition to offering to perform energy audits on behalf of
tenants. Typical energy audit recommendations include placing
timers on chargers or forklifts, installing low-flow toilets, installing
‘smart’ thermostats and upgrading lighting to LED.
Performance and progress to date
•
•
•
100% of new leases contain cost recovery clauses, which
generally include energy-efficiency related capital
improvements.
Most tenants are separately metered for grid electricity
and gas consumption and 49% of the current portfolio by
square feet is separately metered for water consumption.
Dream Industrial REIT promotes energy-efficiency related
capital improvements through cost recovery clauses
embedded within new leases. At the request of tenants,
Dream Industrial REIT will also perform energy audits on
their behalf.
7730 American Way
Orlando, FL
Social
Building
a thriving,
people-centric
organization.
Our social initiatives encompass three key areas:
1
2
3
Employees: Committed to the development of
employees through continuous learning and
promotion of healthy workplaces and lifestyles.
The Greater Community:
Actively committed to the community and
local charitable organizations.
Tenants: Committed to tenant satisfaction
and engagement.
A Diverse Group of Employees
Demonstrating a Culture of
Sustainability
A Future-oriented workforce
Dream’s potential as an organization comes from our strong and
diverse workforce. We have more than 500 employees across
our business units who possess expertise in a wide variety of
areas that benefit our business, from real estate management
and development to capital markets, risk and insurance, and
many more.
Our people come from a range of backgrounds and places,
bringing many valuable skills and perspectives to our team. The
people we hire all have one thing in common: they share our
company values and contribute to our company culture.
We are very proud to have a strong female presence in our
workforce – 49% of our employees are women. In addition,
we have many women in senior management roles across our
different business units.
A Gender-diverse company
Female employees
Female directors & above
38%49+
49%38+
44+
Female managers & above
44%
56
62
51
Partnering with Tenants & Employees
for Ronald McDonald House Charities
Partnering with Tenants on the
Tree of Dreams
Dream Industrial REIT’s charity team collected two carloads of
snacks, school supplies and household products, as well as gift
cards totalling over $500 from employees, contractors, tenants
and family members.
For the fourth consecutive year, we hosted the Tree of Dreams
campaign, in support of local charities that care for underprivileged
seniors. Through this campaign, Dream and its tenants can send
gifts to seniors in our communities who might otherwise not receive
gifts or visits during the holidays. The feedback from tenants was
overwhelmingly positive. With their help, we distributed over 400
gifts to seniors in need, right here in our community.
Dream in the Community
Our company values are aligned with
sustainability
As a major Canadian real estate and development company,
we recognize the integral role that Dream plays in building and
strengthening the communities where we work. We are involved
with a range of community organizations across Canada and we
engage community members wherever we are present.
Dream Employees
Making an impact
Our employees are connected to the communities where they work.
Dream creates opportunities for employees to volunteer through our
relationships with charitable organizations. We have Community
Leaders in each city who identify local volunteering opportunities
and organize team volunteering days for their colleagues. We also
encourage our employees to contribute to their local communities
and boost their efforts through an employee donation program.
Dream will contribute $500 per employee each year to a charitable
organization that employees are actively involved with.
Healthy Workplaces & Lifestyle
Employees health and wellness is important to Dream and
there are a large number of initiatives and programs to encourage
employees to lead healthy lifestyles. We provide free fresh fruit in all
our offices, and selected healthy snacks are available for purchase
at an affordable price.
Throughout the year, Dream also supports fundraising events that
encourage employees to be active for a good cause – bike rides,
stair climbing, runs and walks – and sponsors employee teams so
they can play soccer, hockey or volleyball together in corporate
leagues.
Health & safety is a priority
Ensuring the health and safety of our employees, tenants and
others on all our sites is something we never compromise on:
we target zero injuries. We also seek to exceed health and safety
regulatory requirements by implementing programs focused on
accident investigation and prevention and other types of health
and safety training.
Building Better Leaders
We take great pride in our people and know that investing in
them is a smart decision with great payback. We are focused
on developing leaders throughout our company by providing
opportunities for employees to grow personally and professionally.
Goal-setting
Dream employee goal-setting takes place at the beginning of
each year. Employees discuss goals with their managers that are
aligned with corporate or department objectives as well as personal
development goals. All leadership team goals are visible through
our internal employee website for any employee to view across all
of our business lines.
Governance
Strong
governance
practices &
high ethical
standards.
Our governance initiatives include:
Commitment to Good Governance
1
2
Diverse and experienced Board with
majority of independent trustees.
Strong governance. Transparency in all
aspects of our business.
Dream is committed to sound and effective corporate
governance. Our goal is to not only meet the requirements
established by regulators, but also to uphold the spirit of good
corporate governance.
Good governance is a key aspect
of sustainability
Good governance is regarded as an important part of
corporate sustainability. As one of Canada’s leading real estate
organizations, we are committed to maintaining the highest
standards as it relates to board governance and ethical business
conduct.
We have a diverse and experienced Board with a high ratio of
Independent Trustees.
Sound Board composition and
committees that oversee sustainability
Code of Business Conduct and Ethics
Dream Industrial REIT’s Board achieves strong marks on board
independence. The Board has 75% independent representation and
25% of trustees are female. We are also starting to embed elements
of sustainability in our board mandates.
Driving sustainability progress
Our vision is to integrate sustainability in all our businesses’
strategic plans, enterprise management systems and, most
importantly, in our culture. Good sustainability governance
is important as this is an emerging area of management and value
creation.
Each of the Dream entities has a code of business conduct and
ethics. The code has guidelines for expected behaviours and
practices in day-to-day business activities. While it does not
specifically address corrupt or anti-competitive business situations
that employees may be exposed to, it directs employees to report
conflicts of interest to a manager and it is also supported by a
whistleblower policy.
We anticipate expanding our business ethics guidelines with
explicit guidance about bribery and anti-competitive situations in
the upcoming year. You can find out more information about the
Code of Conduct and the Whistleblower Policy on our website at
www.dream.ca.
Bevi, Reducing Can and Bottle
Consumption at Head Office
Bevi is a water system which replaces canned and bottled
beverages for employees at Dream’s head office. It was chosen
as an alternative to canned and bottled beverages to provide a
fun and engaging way to stay hydrated while doing our part for
the environment. Bevi not only allows us to customize the water
we’re drinking, but it has also allowed us to avoid the waste from
thousands of cans per year.
Sustainability Highlights
Environmental
—
7
of Dream Industrial REIT’s buildings
utilize solar panels covering
817,216 square feet. This is
equivalent to 19 acres, or 14
football fields of solar panels
—
239 MW
of renewable capacity has been
installed by Dream Industrial REIT’s
asset manager, Dream Unlimited, and
its joint venture partners
—
Energy Efficiency
We have been implementing
lighting retrofits throughout
Dream Industrial REIT’s portfolio
—
Energy Efficiency
We are replacing dark roofs with those
composed of white stone reflective
materials which absorb less heat and
can lead to reduced cooling costs and
energy consumption
—
Tenant Engagement
on energy management through
education and awareness
Social*
—
~1,300+ Shoeboxes
and ~$11,000
were donated to The Shoebox Project for
Women’s Shelters by Dream employees
—
~$700,000
was donated to charities
and communities
—
~$302,000
in tuition and professional
development fees were
reimbursed to employees
—
449 Gifts
were donated to seniors through the
Tree of Dreams with Dream tenants
—
Tenant Focused
We are committed to tenant
satisfaction and are continually
looking for ways to improve their
experience in our buildings
—
Community Engagement
We are actively engaged with the
community through strong
partnerships and support for
local charitable organizations
—
National Sponsor
of The Shoebox Project
for Women’s Shelters
—
Peer Recognition
Ethos Award recognizes employee
contributions and their demonstration
of core values, culture and initiatives to
build better communities
—
Employee Development,
Education and Well-Being
Committed to the development of
employees through continuous
learning and promotion of healthy
workplaces and lifestyles
Governance
—
25%
of Dream Industrial REIT
trustees members are women
—
75%
of Dream Industrial REIT
trustees are independent
—
Strong Governance
policies and transparency in all
aspects of our business
—
Whistleblower
procedures and
reporting guidelines
—
Board Mandated
and supported
sustainability initiatives
* Social highlights are based on all Dream entities combined.
Since Dream became the
National Sponsor for
The Shoebox Project for
Women in 2014, Dream
employees have donated
over 6,000 shoeboxes
to women in shelters.
1602 Tricont Avenue
Whitby, ON
Table of Contents
Section I
Key Performance Indicators
Basis of Presentation
Background
Our Objectives
Our Strategy
Section II
Our Properties
Our Operations
Our Results of Operations
Section III
Investment Properties
Our Financing
Our Equity
Section IV
Selected Annual information
Quarterly Information
Non-GAAP Measures and
Other Disclosures
Section V
Disclosure Controls and Our
Procedures and Internal Control
Over Financial Reporting
1
3
4
4
4
6
8
16
21
24
27
31
32
34
41
Section VI
Risks and Our Strategy to Manage
42
Section VII
Critical Accounting Judgments
Changes in Accounting Policies
and Disclosures
46
47
Future Accounting Policy Changes
47
Section VIII
Property Listing
Consolidated Financial Statements
Management’s Responsibility for
the Consolidated Financial
Statements
Independent Auditor’s Report
Consolidated Balance Sheets
Consolidated Statements of
Comprehensive Income
Consolidated Statements of
Changes in Equity
Consolidated Statements of
Cash Flows
Notes to the Consolidated Financial
Statements
Trustees & Management Team
Corporate Information
48
52
53
56
57
58
59
60
IBC
IBC
Management’s discussion and analysis
(All dollar amounts in our tables are presented in thousands of Canadian dollars, except for per square foot amounts, per Unit amounts, or unless otherwise
stated.)
SECTION I
KEY PERFORMANCE INDICATORS
Performance is measured by these and other key indicators:
Total portfolio(1)
Number of properties
Investment properties
Gross leasable area (“GLA”) (in millions of sq. ft.)
Occupancy rate – in-place and committed (period-end)
Occupancy rate – in-place (period-end)
Average in-place and committed base rent per sq. ft. – Canada (period-end)
Average in-place and committed base rent per sq. ft. – U.S. (US$) (period-end)
Weighted average lease term (“WALT”) (years)
December 31,
2019
As at
December 31,
2018
$
$
$
209
2,428,664 $
21.9
95.8%
94.9%
7.43 $
3.87 $
4.1
223
2,138,411
20.2
97.1%
95.7%
7.26
3.93
4.1
Operating results
Net income
Funds from operations (“FFO”)(2)
Net rental income
Comparative properties net operating income (“NOI”)(2)
Distributions
Total distributions(2)
Per Unit amounts
Distribution rate
FFO – diluted(2)(3)
FFO payout ratio – diluted(2)
$
$
$
$
Three months ended December 31,
2018
2019
Year ended December 31,
2018
2019
106,642 $
25,809
36,224
26,908
66,455 $
24,060
30,143
26,256
179,432
105,036
139,026
107,819
25,561 $
19,537 $
95,986
0.17 $
0.18 $
97.8%
0.17 $
0.22 $
80.6%
0.70
0.78
89.6%
$
$
$
$
157,528
88,166
114,235
103,594
73,227
0.70
0.86
81.7%
Dream Industrial REIT 2019 Annual Report | 1
Financing(4)
Weighted average face interest rate on debt (period-end)(5)
Weighted average remaining term to maturity on debt (years)
Interest coverage ratio (times)(2)(6)
Level of debt (net debt-to-assets ratio)(2)
Net debt-to-adjusted EBITDAFV (years)(2)
Unencumbered assets(2)(6)
Available liquidity(2)
Capital
Total number of Units (in thousands)(7)
Net asset value (“NAV”) per Unit(2)
December 31,
2019
As at
December 31,
2018
3.59%
5.5
3.8
23.7%
4.3
96,251 $
591,537 $
153,354
11.76 $
3.65%
4.4
3.3
43.5%
7.2
190,694
103,162
110,615
10.54
$
$
$
(1) Total portfolio excludes assets held for sale at the end of each period as applicable.
(2) FFO, comparative properties NOI, total distributions, diluted FFO per Unit, diluted FFO payout ratio, interest coverage ratio, level of debt (net debt-to-assets
ratio), net debt-to-adjusted EBITDAFV, unencumbered assets, available liquidity and NAV per Unit are non-GAAP measures. See “Non-GAAP Measures and
Other Disclosures” for a description of these non-GAAP measures.
(3) A description of the determination of diluted amounts per Unit can be found in the section “Non-GAAP Measures and Other Disclosures” under the heading
“Weighted average number of Units”.
(4) Financing metrics include assets and liabilities classified as held for sale and income (loss) from discontinued operations at the end of each period as
applicable.
(5) Weighted average face interest rate on debt is calculated as the weighted average face interest rate of all interest bearing debt.
(6) Interest coverage ratio and unencumbered assets (non-GAAP measures) have been restated in the comparative period to conform to current period
presentation. For further details, please refer to the section “Non-GAAP Measures and Other Disclosures” under the headings “Interest coverage ratio” and
“Unencumbered assets”.
(7) Total number of Units includes 18.6 million LP B Units which are classified as a liability under IFRS.
Dream Industrial REIT 2019 Annual Report | 2
BASIS OF PRESENTATION
Our discussion and analysis of the financial position and results of operations of Dream Industrial Real Estate Investment Trust
(“Dream Industrial REIT” or “the Trust”) should be read in conjunction with the audited consolidated financial statements for
the year ended December 31, 2019. Such consolidated financial statements have been prepared in accordance with
International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board.
This management’s discussion and analysis (“MD&A”) is dated as at February 18, 2020.
For simplicity, throughout this discussion, we may make reference to the following:
• “REIT Units”, meaning units of the Trust, excluding Special Trust Units
• “LP B Units” and “subsidiary redeemable units”, meaning the Class B limited partnership units of Dream Industrial LP
• “Units”, meaning REIT Units and LP B Units
When we use terms such as “we”, “us” and “our”, we are referring to Dream Industrial REIT and its subsidiaries.
Estimated market rents disclosed throughout the MD&A are management’s estimates and are based on current period leasing
fundamentals. The current estimated market rents are at a point in time and are subject to change based on future market
conditions.
On June 30, 2019, the Trust classified all of the investment properties in the Eastern Canada region as assets held for sale.
Subsequently, on July 31, 2019, the Trust completed the sale of the Eastern Canada portfolio. Given that the entire Eastern
Canada region was included in assets held for sale and subsequently disposed of, the associated results of operations were
presented separately as income (loss) from discontinued operations. Certain key performance indicators disclosed throughout
the MD&A exclude the Eastern Canada region in the current period.
Certain information herein contains or incorporates comments that constitute forward-looking information within the meaning
of applicable securities legislation, including but not limited to statements relating to the Trust’s objectives, strategies to achieve
those objectives including our European expansion strategy, the Trust’s beliefs, plans, estimates, projections and intentions, and
similar statements concerning anticipated future events, future growth, results of operations, performance, business prospects
and opportunities, acquisitions or divestitures, tenant base, future maintenance and development plans and costs, capital
investments, financing, the availability of financing sources, income taxes, vacancy and leasing assumptions, litigation and the
real estate industry in general – in each case they are not historical facts. Forward-looking statements generally can be identified
by words such as “outlook”, “objective”, “strategy”, “may”, “will”, “would”, “expect”, “intend”, “estimate”, “anticipate”, “believe”,
“should”, “could”, “likely”, “plan”, “project”, “budget” or “continue”, or similar expressions suggesting future outcomes or events.
Forward-looking information is based on a number of assumptions and is subject to a number of risks and uncertainties, many
of which are beyond the Trust’s control, which could cause actual results to differ materially from those disclosed in or implied
by such forward-looking information. These risks and uncertainties include, but are not limited to, general and local economic
and business conditions; the financial condition of tenants; our ability to refinance maturing debt; leasing risks, including those
associated with the ability to lease vacant space; our ability to source and complete accretive acquisitions; and interest rates.
Although the forward-looking statements contained in this MD&A are based on what we believe are reasonable assumptions,
there can be no assurance that actual results will be consistent with these forward-looking statements. Factors that could cause
actual results to differ materially from those set forth in the forward-looking statements and information include, but are not
limited to, general economic conditions; local real estate conditions, including the development of properties in close proximity
to the Trust’s properties; timely leasing of vacant space and re-leasing of occupied space upon expiration; dependence on
tenants’ financial condition; the uncertainties of acquisition activity; the ability to effectively integrate acquisitions; interest
rates; availability of equity and debt financing; our continued compliance with the real estate investment trust (“REIT”)
exemption under the specified investment flow-through trust (“SIFT”) legislation; and other risks and factors described from
time to time in the documents filed by the Trust with securities regulators.
All forward-looking information is as of February 18, 2020. Dream Industrial REIT does not undertake to update any such
forward-looking information whether as a result of new information, future events or otherwise, except as required by
applicable law. Additional information about these assumptions, risks and uncertainties is contained in our filings with securities
regulators. Certain filings are also available on our website at www.dreamindustrialreit.ca.
Dream Industrial REIT 2019 Annual Report | 3
BACKGROUND
Dream Industrial REIT is an unincorporated, open-ended real estate investment trust which provides investors with the
opportunity to invest in a pure-play industrial REIT with a portfolio based in Canada and the United States (“U.S.”). Our REIT
Units are listed on the Toronto Stock Exchange under the trading symbol DIR.UN.
OUR OBJECTIVES
We are committed to:
• Managing our business to provide growing cash flow and stable and sustainable returns, through adapting our strategy and
tactics to changes in the real estate industry and the economy;
• Building and maintaining a diversified, growth-oriented portfolio of industrial distribution and warehousing properties in
major markets, based on an established platform;
• Providing predictable and sustainable cash distributions to unitholders while prudently managing our capital structure over
time; and
• Maintaining a REIT that satisfies the REIT exception under the SIFT legislation in order to provide certainty to unitholders
with respect to taxation of distributions.
OUR STRATEGY
Dream Industrial REIT is a growth-oriented owner of income-producing industrial properties across key markets in Canada and
the U.S., providing stable and sustainable distributions to unitholders on a tax-efficient basis. Our strategy is to grow and upgrade
the quality of our portfolio by investing in key markets to generate stable cash flows and grow net asset value over the long term
for our unitholders. We will continue to review and modify our strategy to meet the ever changing real estate and economic
conditions. Our strategy includes:
Optimizing the performance, value and cash flow of our portfolio
We actively manage our assets to optimize performance, maintain value, attract and retain tenants and maximize cash flows to
our unitholders. Dream Industrial REIT employs experienced staff in all markets where we are active. We strive to ensure that
our assets are the most attractive and cost-effective premises for our tenants.
Maintaining and strengthening our conservative financial profile
We operate our business in a disciplined manner with a strong focus on maintaining a conservative financial structure. We
actively manage our mortgage maturity profile, maintain a conservative debt ratio and generate cash flows sufficient to fund
our distributions.
Growing and diversifying our portfolio to reduce risk
We seek to grow and diversify our portfolio to increase value on a per Unit basis, further improve the sustainability of our
distributions, strengthen our tenant profile and mitigate risk. We anticipate that growing our portfolio will also reduce our cost
of capital, allowing us to both refinance existing mortgages at competitive rates and increase our ability to competitively bid on
acquisition opportunities. We have experience in each of Canada’s key real estate markets, which we believe will provide us
with the flexibility to pursue acquisitions in whichever Canadian markets offer compelling investment opportunities. Through
an affiliate of PAULS Corp, LLC (“PAULS Corp”) and through the Trust’s asset manager, Dream Asset Management Corporation,
the Trust has access to the U.S. market and PAULS Corp's operational platform in the U.S.
Seeking accretive growth opportunities
Dream Industrial REIT seeks to invest in desirable, highly functional properties located in major industrial centres that are well
leased on a long-term basis to quality tenants. When evaluating acquisitions we consider a variety of criteria, including per Unit
accretion; replacement cost of the asset; its functionality and appeal to future tenants; and how the asset complements our
existing portfolio.
Dream Industrial REIT 2019 Annual Report | 4
2020 European expansion strategy update
On January 22, 2020, we announced our expansion into the European light industrial and logistics market. We believe this will
allow us to pair high-quality, well-located industrial properties that can generate higher yields and above average returns with
an attractive cost of debt with rates that are over 200 basis points lower on a comparative basis than North American financing
to generate higher returns for unitholders.
We believe the fundamentals of the industrial and logistics markets across Europe continue to remain attractive, driven by the
continued development and growth in e-commerce fuelling demand from logistics operators coupled with low supply of high-
quality and suitable product. We believe the healthy rental growth potential paired with limited new supply under construction
provides tailwinds for strong performance in this sector over the next five to 10 years.
Dream Unlimited Corp. (“Dream”) has been active in Europe since 1998 and is now dedicating its European platform and
relationships to support our European expansion. Dream Asset Management Corporation, our asset manager, was previously
the asset manager of Dream Global Real Estate Investment Trust (“Dream Global REIT”). Subsequent to the sale of all of Dream
Global REIT’s subsidiaries and assets to affiliates of real estate funds managed by The Blackstone Group Inc., Dream is
committing its global asset management team who were responsible for Dream Global REIT’s success, and its deep local
relationships with tenants, lenders, brokers and partners, to us.
Dream’s existing local European acquisition and asset management team, along with long-standing relationships with the
European real estate brokerage network, will support us in sourcing high-quality and accretive transactions with long-term cash
flow and net asset value growth potential. We have been under contract or in exclusive negotiations to acquire €176 million
($257 million) of assets in strong industrial markets in the Netherlands (the “Dutch Portfolio”) and €48 million ($70 million) of
assets in Germany (the “German Portfolio”) through seven separate transactions, four of which have been completed as of the
date of this MD&A.
The weighted average going-in capitalization rate (the “cap rate”) of the German Portfolio and the Dutch Portfolio is
approximately 6.1% with a weighted average lease term of 5.3 years and in-place rents below estimated market rents.
Following completion of the acquisitions of the German Portfolio and the Dutch Portfolio, we intend to hedge our Euro capital
exposure by borrowing up to 100% of the Euro value of our portfolio to mitigate currency risk. The debt will be a combination
of unsecured and secured financings on properties in Europe and North America, denominated in euros. As a result, we believe
the total value of the portfolio will be hedged, and we currently estimate that we will access debt at interest rates in the range
of 1.30% to 1.50% over a five-year term from our debt and hedging strategy. Effectively, we will continue to maintain a low
leverage ratio with a higher proportion of the debt hedged in euros.
We are focused on improving our overall cost of debt and improving the risk profile of our business. To that end, we intend to
pursue a more conservative leverage structure and optimize sources of debt capital by borrowing up to 100% of the Euro value
of our portfolio, while concurrently reducing our debt in North America to maintain an overall leverage ratio below 40%. We
believe this strategy will allow us to achieve lower overall interest expense while mitigating currency risk on our investments.
We intend to continue to increase our unencumbered asset pool, pursue an investment grade credit rating and obtain unsecured
financings in 2020. We believe that Dream’s existing European platform, people and relationships with global lenders will help
us successfully achieve this debt strategy.
Dream Industrial REIT 2019 Annual Report | 5
SECTION II
OUR PROPERTIES
Owned gross leasable area by region
Dream Industrial REIT owns and operates a diversified portfolio of industrial distribution and warehousing properties located in
key markets across North America. Our properties are located in desirable business parks, situated close to highways and
population centres, and generally considered functional and well suited for their respective markets.
As at December 31, 2019 and December 31, 2018, our properties are geographically diversified as follows:
Western Canada
Ontario
Québec
Canadian Portfolio
U.S. Portfolio
Total continuing operations
Eastern Canada
Total portfolio(1)
Number of
properties
81
61
38
180
29
209
—
209
Owned GLA
(thousands of sq. ft.)
5,081
5,420
4,121
14,622
7,275
21,897
—
21,897
December 31, 2019
Percentage of
owned GLA
23 %
25 %
19 %
67 %
33 %
100 %
—
100 %
Number of
properties
83
59
37
179
7
186
37
223
Owned GLA
(thousands of sq. ft.)
5,058
5,099
3,888
14,045
3,488
17,533
2,661
20,194
December 31, 2018
Percentage of
owned GLA
25 %
26 %
19 %
70 %
17 %
87 %
13 %
100 %
(1) Excludes assets held for sale at the end of each period as applicable.
Across our regions, our portfolio consists of single- and multi-tenant buildings as follows:
Western Canada
Ontario
Québec
Canadian Portfolio
U.S. Portfolio
Total continuing operations
Single-tenant GLA
(thousands of sq. ft.)
743
2,697
2,236
5,676
3,098
8,774
Percentage of
owned GLA
3 %
13 %
10 %
26 %
14 %
40 %
Multi-tenant GLA
(thousands of sq. ft.)
4,338
2,723
1,885
8,946
4,177
13,123
December 31, 2019
Percentage of
owned GLA
20 %
12 %
9 %
41 %
19 %
60 %
The differences between single- and multi-tenant buildings can be seen in the following operating metrics:
• Average tenant size – single tenants typically occupy significantly more space on an individual basis than those tenants in
multi-tenant buildings;
• Average lease term – single tenants typically have lease terms that are significantly longer than those for multi-tenant
buildings, which tends to offset the concentration risk of having a large single tenant in a building; and
• Average in-place rents per square foot – they are typically moderately higher in multi-tenant buildings.
Multi-tenant buildings with shorter lease terms allow a landlord to bring rents to market rates on a more frequent basis, thereby
taking advantage of supply-constrained market conditions. Small-bay multi-tenant buildings tend to have higher construction
costs and tend to be located in denser urban markets, which increases the barriers to competition from new supply. Selective
ownership of single-tenant buildings provides a source of stable cash flow with relatively less management effort required. In
addition to the geographic distribution, maintaining a balance of the two building types in the portfolio is part of our
diversification strategy.
Dream Industrial REIT 2019 Annual Report | 6
Tenant base profile
Our tenant base consists of a diverse range of high-quality businesses. The following table summarizes the number of tenants,
average tenant size and weighted average lease term of our single- and multi-tenant buildings as at December 31, 2019:
Single-tenant buildings
Multi-tenant buildings
Total continuing operations
Number of
tenants
74
930
1,004
Average tenant size
(thousands of sq. ft.)
113
14
21
December 31, 2019
WALT
(years)
4.7
3.7
4.1
The following table outlines the contributions of our top 10 tenants to our annualized gross rental revenue as at December 31,
2019:
Rank Tenant
1. Nissan North America Inc.
2. Spectra Premium Industries Inc.
3. TC Transcontinental
4. Gienow Windows & Doors Inc.
5. Accel Inc.
6. United Agri Products Canada Inc.
7. Molson Breweries Properties
8. ODW Logistics
9. West Marine Products Inc.
10. Henry Schein Inc.
Total
Gross rental
revenue
3.9 %
2.4 %
2.2 %
2.0 %
1.6 %
1.5 %
1.3 %
1.2 %
1.2 %
1.0 %
18.3 %
Owned GLA
(thousands of sq. ft.)
1,189
656
523
371
417
275
225
248
472
380
4,756
Owned GLA
5.4 %
3.0 %
2.4 %
1.7 %
1.9 %
1.3 %
1.0 %
1.1 %
2.2 %
1.7 %
21.7 %
WALT
(years)
5.0
5.4
2.2
9.4
6.5
3.8
3.0
4.0
3.0
2.2
4.6
Dream Industrial REIT 2019 Annual Report | 7
OUR OPERATIONS
The following key performance indicators related to our operations influence the cash generated from operating activities. The
key performance indicators exclude assets held for sale at the end of each period as applicable.
Total portfolio in-place and committed occupancy
Our in-place and committed occupancy includes lease commitments totalling approximately 194,000 square feet for space that
is being readied for occupancy but for which rental revenue is not yet recognized.
The following table details our total portfolio in-place and committed occupancy by region.
(percentage)
Western Canada
Ontario
Québec
Total Canada – continuing operations
Eastern Canada – discontinued operations
Total Canada
Total U.S.
Total
December 31,
2019
94.4
96.9
99.2
96.7
—
96.7
93.9
95.8
September 30,
2019
96.0
97.1
99.1
97.3
—
97.3
94.2
96.2
Total portfolio(1)
December 31,
2018
95.2
98.0
98.1
97.0
93.7
96.5
100.0
97.1
(1) Excludes assets held for sale at the end of each period as applicable.
Overall in-place and committed occupancy of our Canadian portfolio continuing operations at December 31, 2019 decreased by
60 basis points (“bps”) and 30 bps, respectively, when compared to September 30, 2019 and December 31, 2018, primarily
driven by declines in the Western Canada and Ontario regions, with modest increases in the Québec region.
In-place and committed occupancy in Western Canada declined during the quarter and on a year-over-year basis, mainly due to
an expected single-tenant vacancy in approximately 49,000 square feet in Edmonton and terminations totalling approximately
51,000 square feet in the current quarter, partially offset by net positive leasing absorption for the remainder of the year. We
remained focused on occupancy in Western Canada.
In-place and committed occupancy in Ontario declined during the quarter and on a year-over-year basis, mainly due to a single-
tenant that we terminated in approximately 98,000 square feet in the Greater Toronto Area (“GTA”) in the current quarter, and
net negative leasing absorption during the year, partially offset by acquired properties which were substantially occupied. We
see the drop in occupancy in Ontario as an opportunity for our leasing team to mark in-place rents to market sooner and
capitalize on a strong leasing environment in the GTA.
In-place and committed occupancy in Québec increased modestly during the quarter and on a year-over-year basis, mainly due
to high retention and net positive leasing absorption. With near full occupancy in our Québec portfolio, we remain focused on
driving rental rates higher in the strong leasing environment in the Greater Montréal Area.
In-place and committed occupancy in the U.S. decreased modestly during the quarter and on a year-over-year basis. The decline
was mainly attributable to a single-tenant vacating approximately 36,000 square feet in Columbus, Ohio, and the vacancies in
the Midwest U.S. portfolio acquired earlier in the year.
Dream Industrial REIT 2019 Annual Report | 8
Canadian portfolio occupancy continuity
The following table details the change in in-place and committed occupancy across our Canadian portfolio for the three months
and year ended December 31, 2019:
Three months ended December 31, 2019
Canadian portfolio
Occupancy (in-place and committed) at beginning of period
Vacancy committed for future occupancy
Occupancy (in-place) at beginning of period
Occupancy related to acquired properties and remeasurements
Occupancy related to sold properties
Occupancy (in-place) at beginning of period – adjusted
Natural expiries and relocations
Early terminations
New leases
Renewals and relocations
Occupancy (in-place) at end of period
Vacancy committed for future occupancy
Occupancy (in-place and committed) at end of period
Weighted
average rate
per sq. ft.
$
$
$
$
7.72
6.78
11.15
7.22
Thousands of
sq. ft.
14,138
(61 )
14,077
97
—
14,174
(1,184 )
(191 )
131
1,024
13,954
183
14,137
Percentage
of owned
GLA
97.3 %
(0.4 %)
96.9 %
Weighted
average rate
per sq. ft.
Year ended December 31, 2019
Percentage
of owned
GLA
96.5 %
(1.7 %)
94.8 %
Thousands of
sq. ft.
16,121
(279 )
15,842
686
(2,462 )
14,066
(2,845 )
(299 )
892
2,140
13,954
183
14,137
96.2 %
(19.5 %)
(2.0 %)
6.1 %
14.6 %
95.4 %
1.3 %
96.7 %
7.50
7.50
8.63
7.45
96.9 %
(8.1 %) $
(1.3 %) $
0.9 % $
7.0 % $
95.4 %
1.3 %
96.7 %
U.S. portfolio occupancy continuity
The following table details the change in in-place and committed occupancy across our U.S. portfolio for the three months and
year ended December 31, 2019:
Three months ended December 31, 2019
Year ended December 31, 2019
U.S. portfolio (per sq. ft. amounts in US$)
Occupancy (in-place and committed) at beginning of period
Vacancy committed for future occupancy
Occupancy (in-place) at beginning of period
Occupancy related to acquired properties and remeasurements
Occupancy (in-place) at beginning of period – adjusted
Natural expiries and relocations
Early terminations
New leases
Renewals and relocations
Occupancy (in-place) at end of period
Vacancy committed for future occupancy
Occupancy (in-place and committed) at end of period
Weighted
average rate
per sq. ft.
$
$
$
$
3.14
—
4.97
3.88
Thousands of
sq. ft.
6,855
(31 )
6,824
—
6,824
(263 )
—
47
211
6,819
11
6,830
Weighted
average rate
per sq. ft.
Percentage
of owned
GLA
94.2 %
(0.4 %)
93.8 %
3.30
2.69
4.29
3.91
93.8 %
(3.6 %) $
— % $
0.6 % $
2.9 % $
93.7 %
0.2 %
93.9 %
Thousands of
sq. ft.
3,488
—
3,488
3,473
6,961
(574 )
(27 )
74
385
6,819
11
6,830
Percentage
of owned
GLA
100.0 %
— %
100.0 %
95.7 %
(7.9 %)
(0.4 %)
1.0 %
5.3 %
93.7 %
0.2 %
93.9 %
The overall tenant retention ratio in our Canadian and U.S. portfolios for the three months and year ended December 31, 2019
was 85.3% and 73.9%, respectively. Tenant retention ratio is calculated as the ratio of total square feet of renewed and relocated
space over natural expiries and relocations.
As at December 31, 2019, vacant space committed for future occupancy in our total portfolio was approximately 194,000 square
feet, bringing our overall in-place and committed occupancy to 95.8%. All of the Trust’s future committed occupancy is
scheduled to take occupancy during 2020.
Dream Industrial REIT 2019 Annual Report | 9
Canadian portfolio new lease, renewal and relocation spreads
The following table compares the Canadian portfolio’s weighted average new, renewal and relocation rate on leased space that
commenced during the three months and year ended December 31, 2019 to the weighted average prior and expiring rate.
Canadian portfolio
New, renewal and relocation rate (per sq. ft.)
Prior and expiring rate (per sq. ft.)
New, renewal and relocation rate to prior and expiring rate spread (per sq. ft.)(1)
New, renewal and relocation rate to prior and expiring rate spread over prior and
expiring rate (%)(2)
For the three months ended
December 31, 2019
7.66
$
7.63
$
0.03
$
For the year ended
December 31, 2019
7.83
$
7.51
$
0.32
$
0.4
4.3
(1) New, renewal and relocation rate to prior and expiring rate spread (per sq. ft.) is calculated as the difference between the weighted average new, renewal
and relocation rate and the weighted average prior and expiring rate.
(2) New, renewal and relocation rate to prior and expiring rate spread over prior and expiring rate (%) is calculated as the ratio of new, renewal and relocation
rate spread (per sq. ft.) divided by the weighted average prior and expiring rate (per sq. ft.).
For the three months ended December 31, 2019, the weighted average new, renewal and relocation rate to prior and expiring
rate spread in the Canadian portfolio was 0.4% higher than the weighted average prior and expiring rate. In the Western Canada
region, rental spreads were negative at 8.9%, where we remain focused on occupancy, building contractual rent growth in leases,
and investing capital prudently. In the Ontario and Québec regions, spreads were positive at 8.2% and 10.3%, respectively. Our
fourth quarter Ontario leasing activity had a larger portion of non-GTA leases which have lower rental rate spreads than our GTA
leases. Notably, in the GTA, we completed a five-year renewal on 80,000 square feet with a 94% spread to expiring rent and
3.5% annual contractual rent growth.
For the year ended December 31, 2019, the weighted average new, renewal and relocation rate to prior and expiring rate spread
in the Canadian portfolio was 4.3% higher than the weighted average prior and expiring rate. Year-to-date rental spreads were
led by Ontario and Québec at 14.9% and 11.4%, respectively, reflecting continued demand for industrial space in those markets.
As a result of when leases are executed, new lease and renewal rates on leased space reflect committed deals signed in prior
periods. These rates may not be reflective of the rates transacted in the current period.
U.S. portfolio new lease, renewal and relocation spreads
The following table compares the U.S. portfolio's weighted average new, renewal and relocation rate on leased space that
commenced during the three months and year ended December 31, 2019 to the weighted average prior and expiring rate.
U.S. portfolio (per sq. ft. amounts in US$)
New, renewal and relocation rate (per sq. ft.)
Prior and expiring rate (per sq. ft.)
New, renewal and relocation rate to prior and expiring rate spread (per sq. ft.)(1)
New, renewal and relocation rate to prior and expiring rate spread over prior and
expiring rate (%)(2)
For the three months ended
For the year ended
December 31, 2019 December 31, 2019
4.02
$
3.30
$
0.72
$
4.07
3.23
0.84
$
$
$
26.0
21.8
(1) New, renewal and relocation rate to prior and expiring rate spread (per sq. ft.) is calculated as the difference between the weighted average new, renewal
and relocation rate and the weighted average prior and expiring rate.
(2) New, renewal and relocation rate to prior and expiring rate spread over prior and expiring rate (%) is calculated as the ratio of new, renewal and relocation
rate spread (per sq. ft.) divided by the weighted average prior and expiring rate (per sq. ft.).
For the three months and year ended December 31, 2019, the weighted average new, renewal and relocation rate to prior and
expiring rate spread in the U.S. portfolio was 26.0% and 21.8% higher, respectively, than the weighted average prior and expiring
rate. Our U.S. portfolio lease rollovers have been concentrated in Columbus, Ohio, and Chicago, Illinois, and we are seeing strong
rental rate spreads on lease rollovers in those markets. Notably, during the quarter in Chicago, we completed a three-year
renewal on approximately 155,000 square feet with a 37.0% spread to expiring rent and 4.0% annual contractual rent growth.
Dream Industrial REIT 2019 Annual Report | 10
Total portfolio rental rates
Average in-place and committed base rent is contractual base rent and excludes recoveries and recoverable tenant inducements.
The following table details the average in-place and committed base rent for our total portfolio (excluding assets held for sale).
Total portfolio(1)
Western Canada
Ontario
Québec
Total Canada – continuing operations
Eastern Canada
Total Canada
Total U.S. (US$)
December 31, 2019
8.83
6.86
6.53
7.43
—
7.43
3.87
$
$
$
$
$
$
Average in-place and committed base rent (per sq. ft.)
December 31, 2018
8.93
6.39
6.28
7.26
7.26
7.26
3.93
September 30, 2019
8.88
6.73
6.44
7.39
—
7.39
3.85
$
$
$
$
$
$
(1) Excludes assets held for sale at the end of each period as applicable.
As at December 31, 2019, the average in-place and committed base rent for our Canadian portfolio was $7.43 per square foot
compared to $7.39 per square foot as at September 30, 2019 and $7.26 per square foot as at December 31, 2018. The increase
was primarily driven by lease rollovers in the Ontario and Québec regions where we are capturing strong positive rental
rate spreads.
As at December 31, 2019, the average in-place and committed base rent for our U.S. portfolio was US$3.87 per square foot
compared to US$3.85 per square foot as at September 30, 2019 and US$3.93 per square foot as at December 31, 2018. The
quarter-over-quarter increase was mainly attributable to strong rental spreads on lease rollovers in Columbus, Ohio, and
Chicago, Illinois. The year-over-year decrease was primarily due to the lower average in-place and committed base rents
inherited from the acquisition of the Midwest U.S. portfolio in the first quarter of 2019. Partially offsetting this decrease was
the strong leasing activity with rental rate spreads of 21.8% over the prior and expiring rate.
The following table compares the average in-place and committed base rent per square foot with our estimated market rent
per square foot by region for our total portfolio as at December 31, 2019.
Total portfolio
Western Canada
Ontario
Québec
Total Canada – continuing operations
Total U.S. (US$)
Total WALT (Canada and U.S.) (years)
December 31, 2019
Average in-place and
committed base rent
(per sq. ft.)
$
$
$
8.83 $
6.86
6.53
7.43 $
3.87 $
Estimated
market rent(1)
(per sq. ft.)
8.85
8.47
6.56
8.04
4.31
Estimated market
rent/average in-place
and committed
base rent
0.2 %
23.5 %
0.5 %
8.2 %
11.4 %
WALT
(years)
3.7
4.7
3.4
4.0
4.3
4.1
(1) Estimate only; based on current market rents with no allowance for increases in future years. Subject to changes in market conditions in respective regions.
Estimated market rent represents management’s best estimate of the base rent that would be achieved in a new arm’s length
lease in the event that a unit becomes vacant after a reasonable marketing period with an inducement and lease term
appropriate for the particular space. Market rent by property is reviewed regularly by our leasing and portfolio management
teams. Market rents may differ by property or by unit and depend upon a number of factors. Some of the factors considered
include the condition of the space, the location within the building, the amount of office build-out for the units, lease term and
a normal level of tenant inducements. Market rental rates are also compared against independent external appraisal information
that is gathered on a quarterly basis as well as other external market data sources.
As a result of when leases are executed, there is typically a lag between estimated market rents and average in-place and
committed base rent.
As at December 31, 2019, our Canadian and U.S. portfolios’ estimated market rents were 8.2% and 11.4% higher, respectively,
than the average in-place and committed base rents, presenting an opportunity for us to surface additional value as leases roll
over in the respective markets.
Dream Industrial REIT 2019 Annual Report | 11
Lease maturity profile, net of lease commitments
The following table details our total portfolio lease maturity profile by region, net of renewals and new leases completed as at
December 31, 2019:
Total portfolio
(in thousands of sq. ft.)
Western Canada
Ontario
Québec
Total Canada
Total U.S.
Total GLA
Percentage of total GLA
Vacancy, net of
commitments
284
167
33
484
446
930
4.3%
2020
589
443
411
1,443
120
1,563
7.1%
2021
759
628
632
2,019
573
2,592
11.8%
2022
794
836
870
2,500
911
3,411
15.6%
2023
970
546
632
2,148
2,005
4,153
19.0%
2024
642
471
446
1,559
650
2,209
10.1%
2025+
1,043
2,329
1,097
4,469
2,570
7,039
32.1%
Total
5,081
5,420
4,121
14,622
7,275
21,897
100.0%
Our lease maturity profile, net of renewals and new leases completed, remains staggered. Lease expiries, net of committed
occupancy as a percentage of total GLA between 2020 and 2024, range from 7.1% to 10.1%.
Lease expiry profile for 2020
The following table details our total portfolio lease maturity profile for 2020 by region, net of renewals and net of committed
new leases on vacant space:
Total portfolio
(in thousands of sq. ft.)
2020 expiries (as at December 31, 2019)
Expiries committed for renewals
Expiries, net of renewals
Commitments as a % of expiries
Current vacancies
Current vacancies committed for future occupancy
Current vacancies, net of commitments for future occupancy
Western
Canada
(1,124 )
535
(589 )
47.6 %
(324 )
40
(284 )
Ontario
(873 )
430
(443 )
49.3 %
(306 )
139
(167 )
Québec
(481 )
70
(411 )
14.6 %
(37 )
4
(33 )
Total
Canada
(2,478 )
1,035
(1,443 )
41.8%
(667 )
183
(484 )
Total
U.S.
(618 )
498
(120 )
80.6 %
(457 )
11
(446 )
Total
(3,096 )
1,533
(1,563 )
49.5 %
(1,124 )
194
(930 )
Lease incentives and initial direct leasing costs
Lease incentives include costs incurred to make leasehold improvements to tenant spaces, landlord works and cash allowances.
Initial direct leasing costs include leasing fees and related costs and broker commissions incurred in negotiating and arranging
tenant leases. Lease incentives and initial direct leasing costs are dependent upon asset type, lease terminations and expiries,
the mix of new leasing activity compared to renewals, portfolio growth and general market conditions. Short-term leases
generally have lower costs than long-term leases.
Initial direct leasing costs shown in the table below include costs attributable to leases that commenced in the respective
periods. Due to the timing of the signing of lease agreements, certain costs, such as lease commissions, may be incurred in
advance of lease commencement.
For the three months ended December 31, 2019 and December 31, 2018, leasing costs associated with leases that commenced
during the period were $3.04 per square foot and $3.75 per square foot, respectively. Leasing costs per square foot decreased
compared to the prior year comparative quarter primarily due to 258,000 square feet of U.S. leasing activity in the current
quarter with minimal leasing costs.
Dream Industrial REIT 2019 Annual Report | 12
For the years ended December 31, 2019 and December 31, 2018, leasing costs were $3.70 per square foot and $2.90 per square
foot, respectively. Leasing costs per square foot increased on a year-to-date basis, primarily attributable to lease
commencements of flex office properties typically requiring higher leasing costs and a 351,000 square foot 10-year early renewal
for our largest tenant in the Western Canada region. In Western Canada, we continue to focus on improving occupancy while
prudently investing the necessary capital to lease up space.
Performance indicators for leases that commenced
during the period(1)(2)
Leases that commenced during the period
(in thousands of sq. ft.)
WALT (years)
Lease incentives and initial direct leasing costs:
In thousands of dollars
Per square foot
For the three months ended December 31,
For the year ended December 31,
2019
1,413
5.7
2018
636
3.6
2019
3,491
4.7
$
$
4,299 $
3.04 $
2,388 $
3.75 $
12,908 $
3.70 $
2018
2,875
4.8
8,351
2.90
(1) Excludes Eastern Canada portfolio in the current and comparative period.
(2) Excluded from the three months and year ended December 31, 2018 are fully recoverable leasing costs of $3.0 million and $3.7 million, respectively.
Net rental income from continuing operations
Net rental income is defined by the Trust as total investment properties revenue less investment properties operating expenses
from continuing operations.
For a detailed discussion about investment properties revenue and operating expenses from continuing operations for the three
months and years ended December 31, 2019 and December 31, 2018, refer to the “Our Results of Operations” section.
Western Canada
Ontario
Québec
U.S.
Properties sold and properties originally held for sale
and subsequently sold(1)
Net rental income from continuing operations
$
$
(1) Excludes discontinued operations.
Three months ended December 31,
Amount
11,008
9,223
6,820
9,207
2019
%
Amount
30 % $ 10,622
26 %
8,706
19 %
5,925
25 %
4,890
2018
%
35 % $
29 %
20 %
16 %
Amount
43,829
36,703
25,635
32,857
Year ended December 31,
2018
%
38 %
29 %
20 %
13 %
Amount
43,348
33,349
22,476
15,062
2019
%
32 % $
26 %
18 %
24 %
(34 )
0 %
36,224 100 % $ 30,143 100 % $ 139,026 100 % $
— %
0 %
—
2
—
— %
114,235 100 %
For the three months and year ended December 31, 2019, net rental income from continuing operations increased by
$6.1 million, or 20.2%, and $24.8 million, or 21.7%, respectively, over the prior year comparative quarter and year, mainly driven
by the impact of acquired investment properties in 2019 and 2018 and comparative properties NOI growth.
Comparative properties NOI (year-over-year comparison)
Comparative properties NOI (year-over-year comparison) is a non-GAAP measure used by management in evaluating the
performance of properties fully owned by the Trust in the current and comparative periods presented. When the Trust compares
comparative properties NOI on a year-over-year basis, the Trust excludes investment properties acquired after January 1, 2018,
and properties held for sale or properties disposed of prior to or as at the current period. Comparative properties NOI also
excludes lease termination fees and other rental income, straight-line rent, estimated credit losses and amortization of lease
incentives. This measure is not defined by IFRS, does not have a standard meaning and may not be comparable with similar
measures presented by other income trusts.
Given that the entire Eastern Canada segment was classified as assets held for sale at the end of June 30, 2019 and subsequently
sold on July 31, 2019, the associated results of operations for the three months and years ended December 31, 2019 and
December 31, 2018 have been presented separately as income from discontinued operations and excluded from comparative
properties NOI in the current and prior periods.
Dream Industrial REIT 2019 Annual Report | 13
The tables below detail the comparative properties NOI by region and other items to assist in understanding the impact each
component has on net rental income from continuing operations for the three months and years ended December 31, 2019 and
December 31, 2018.
$
Western Canada
Ontario
Québec
U.S.
Comparative properties NOI
NOI from acquired properties
Lease termination fees and other
Straight-line rent
Expected credit loss
Amortization of lease incentives
NOI from sold properties
Net rental income from continuing operations $
December 31,
2019
11,137 $
8,186
6,265
1,320
26,908
9,254
301
287
(92 )
(400 )
(34 )
36,224 $
December 31,
2018
10,830 $
8,231
5,865
1,330
26,256
3,976
90
203
(223 )
(293 )
134
30,143 $
Three months ended
Change Change
in %
2.8 %
(0.5)%
6.8 %
(0.8)%
2.5 %
in $
307
(45 )
400
(10 )
652
5,278
211
84
131
(107 )
(168 )
6,081 20.2 %
Change in
weighted average
occupancy %
2.1%
(3.4)%
3.0%
—%
0.4%
Change in
in-place
base rent %
(1.1)%
4.2 %
1.0 %
0.5 %
1.3 %
For the three months ended December 31, 2019, comparative properties NOI increased by $0.7 million, or 2.5%, compared to
the prior year comparative quarter. The increase was primarily due to higher average occupancy in Western Canada and higher
rental rates and average occupancy in Québec. In Ontario, the average in-place base rent increased 4.2% year-over-year but a
temporary dip in occupancy offset the comparative properties NOI growth from the region.
$
Western Canada
Ontario
Québec
U.S.
Comparative properties NOI
NOI from acquired properties
Lease termination fees and other
Straight-line rent
Expected credit loss
Amortization of lease incentives
NOI from sold properties
Net rental income from continuing operations $
December 31,
2019
44,792 $
33,252
24,457
5,318
107,819
31,620
376
1,173
(491 )
(1,461 )
(10 )
139,026 $
December 31,
2018
43,385 $
32,312
22,744
5,153
103,594
10,121
174
955
(446 )
(1,131 )
968
114,235 $
Change
in $
1,407
940
1,713
165
4,225
21,499
202
218
(45 )
(330 )
(978 )
24,791
21.7 %
Year ended
Change
in %
3.2 %
2.9 %
7.5 %
3.2 %
4.1 %
Change in
weighted average
occupancy %
1.7%
(1.2)%
3.1%
—%
1.0%
Change in
in-place
base rent %
0.2 %
3.8 %
1.6 %
0.5 %
1.7 %
For the year ended December 31, 2019, comparative properties NOI increased by $4.2 million, or 4.1%, compared to the prior
year. The increase was primarily due to the same reasons as noted above. The Trust’s comparative properties portfolio in the
U.S. comprised only two properties. Comparative properties NOI increased 3.2% due to contractual rent growth and a stronger
U.S. dollar.
Dream Industrial REIT 2019 Annual Report | 14
Comparative properties NOI (quarter-over-quarter comparison)
Comparative properties NOI (quarter-over-quarter comparison) is a non-GAAP measure used by management in evaluating the
performance of properties fully owned by the Trust in the current and comparative periods presented. When the Trust compares
comparative properties NOI on a quarter-over-quarter basis, the Trust excludes investment properties acquired after
October 1, 2019, and properties held for sale or properties disposed of prior to or as at the current period. Comparative
properties NOI also excludes lease termination fees and other rental income, straight-line rent, expected credit loss and
amortization of lease incentives. This measure is not defined by IFRS, does not have a standard meaning and may not be
comparable with similar measures presented by other income trusts.
The table below details the comparative properties NOI by region and other items to assist in understanding the impact each
component has on net rental income from continuing operations for the three months ended December 31, 2019 and
September 30, 2019.
Western Canada
Ontario
Québec
U.S.
Comparative properties NOI
NOI from acquired properties
Lease termination fees and other
Straight-line rent
Expected credit loss
Amortization of lease incentives
NOI from sold properties
Net rental income from continuing operations
$
December 31,
2019
11,134 $
9,272
6,477
8,657
35,540
622
301
287
(92 )
(400 )
(34 )
36,224 $
September 30,
2019
11,411 $
9,471
6,500
8,375
35,757
478
55
135
(131 )
(336 )
(40 )
35,918 $
$
in $
(277 )
(199 )
(23 )
282
(217 )
144
246
152
39
(64 )
6
306
0.9%
Three months ended
Change Change
in %
(2.4 )%
(2.1 )%
(0.4 )%
3.4%
(0.6 )%
Change in
weighted average
occupancy %
(0.6 )%
(0.9 )%
—%
(0.6 )%
(0.6 )%
Change in
in-place
base rent %
(1.5 )%
0.5%
(0.5 )%
4.2%
0.6%
For the three months ended December 31, 2019, comparative properties NOI decreased by $0.2 million, or 0.6%, compared to
the prior quarter, primarily due to lower average occupancy and lower rental rates in Western Canada and lower average
occupancy in Ontario, partially offset by higher rental rates in the U.S.
Dream Industrial REIT 2019 Annual Report | 15
OUR RESULTS OF OPERATIONS
Investment properties revenue
Investment properties operating expenses
Net rental income
Other income
Interest and fee income
Other expenses
General and administrative
Interest:
Debt(1)
Subsidiary redeemable units
Depreciation and amortization
Three months ended December 31,
$
2019
50,984 $
(14,760 )
36,224
2018
41,942 $
(11,799 )
30,143
Year ended December 31,
2019
2018
160,443
195,331 $
(56,305 )
(46,208 )
114,235
139,026
959
959
50
50
1,910
1,910
657
657
(3,203 )
(2,408 )
(12,060 )
(10,095 )
(8,686 )
(3,344 )
(20 )
(15,253 )
(8,058 )
(3,344 )
(9 )
(13,819 )
(34,956 )
(13,376 )
(55 )
(60,447 )
(34,325 )
(13,376 )
(59 )
(57,855 )
108,308
(17,120 )
(4,394 )
86,794
143,831
(1,236 )
142,595
14,933
157,528
11,990
92
12,082
169,610
Fair value adjustments and net losses on transactions
and other activities
Fair value adjustments to investment properties
Fair value adjustments to financial instruments
Net losses on transactions and other activities
Income before income taxes and discontinued operations
Current and deferred income taxes expense, net
Income from continuing operations, net of taxes
Income (loss) from discontinued operations, net of taxes
Net income
Other comprehensive income (loss)
Items that will be reclassified subsequently to net income:
Unrealized gain (loss) on foreign currency translation, net of taxes
Unrealized gain (loss) on effective interest rate hedge, net of taxes
Comprehensive income
89,768
4,314
(3,822 )
90,260
112,190
(5,404 )
106,786
(144 )
106,642 $
(5,921 ) $
—
(5,921 )
100,721 $
$
$
$
38,530
8,876
(643 )
46,763
63,137
(743 )
62,394
4,061
66,455 $
7,703 $
6
7,709
74,164 $
180,488
(70,817 )
(4,929 )
104,742
185,231
(8,458 )
176,773
2,659
179,432 $
(11,346 ) $
(36 )
(11,382 )
168,050 $
(1) For the three months and year ended December 31, 2019, mark-to-market amortization included in interest expense was a gain of $0.2 million and
$0.6 million, respectively (for the three months and year ended December 31, 2018 – gain of $0.2 million and $0.3 million, respectively).
Investment properties revenue
Investment properties revenue includes base rent from investment properties, recovery of operating costs, property taxes and
capital expenditures from tenants, the impact of straight-line rent adjustments, lease termination fees and other adjustments
as well as fees earned from property management.
Investment properties revenue for the three months and year ended December 31, 2019 increased by $9.0 million, or 21.6%,
and $34.9 million, or 21.7%, respectively, compared to the prior year comparative quarter and year. The increase is mainly due
to the impact of acquired properties in 2019 and 2018, as well as higher overall weighted average occupancy and rental rates.
Investment properties operating expenses
Investment properties operating expenses comprise operating costs and property taxes as well as certain expenses that are not
recoverable from tenants. Operating expenses fluctuate with changes in occupancy levels, expenses that are seasonal in nature,
and the level of repairs and maintenance incurred during the period.
Investment properties operating expenses for the three months and year ended December 31, 2019 increased by $3.0 million,
or 25.1%, and $10.1 million, or 21.9%, respectively, compared to the prior year comparative quarter and year. The increase is
primarily due to the impact of acquired properties in 2019 and 2018 as well as higher overall weighted average occupancy.
Dream Industrial REIT 2019 Annual Report | 16
General and administrative expenses
The following table summarizes our general and administrative (“G&A”) expenses for the three months and years ended
December 31, 2019 and December 31, 2018:
Asset management fee
Professional fees and general corporate expenses(1)
Deferred compensation expenses
Total
Three months ended December 31,
2018
(1,032 ) $
(950 )
(426 )
(2,408 ) $
2019
(1,250 ) $
(1,487 )
(466 )
(3,203 ) $
$
$
Year ended December 31,
2019
2018
(4,775 ) $
(3,909 )
(5,129 )
(4,005 )
(2,156 )
(2,181 )
(12,060 ) $
(10,095 )
(1) General corporate expenses include corporate management and overhead related costs, public reporting, and Board of Trustees’ fees and expenses.
G&A expenses for the three months and year ended December 31, 2019 increased by $0.8 million, or 33.0%, and $2.0 million,
or 19.5%, respectively, compared to the prior year comparative quarter and year. Asset management fees increased due to the
acquisitions completed in 2019 and 2018. Professional fees and general corporate expenses increased due to higher overhead
costs and business taxes applicable to the U.S. acquired properties.
Interest expense on debt
Interest expense on debt for the three months and year ended December 31, 2019 increased by $0.6 million, or 7.8%, and
$0.6 million, or 1.8%, respectively, compared to the prior year comparative quarter and year.
Interest expense increased due to short-term borrowings used to fund acquisitions and new mortgages placed on the acquired
properties. The increase in interest expense was partially offset by the discharge of Eastern Canada portfolio mortgages using
the net proceeds from the Eastern Canada disposition and the redemption of the 5.25% convertible debentures in the third
quarter of 2018.
Fair value adjustments to investment properties
Refer to the section “Fair value adjustments to investment properties” under the heading “Investment Properties” for a
discussion of fair value changes to investment properties for the three months and year ended December 31, 2019.
Fair value adjustments to financial instruments
Fair value adjustments to financial instruments include remeasurements of the carrying value of subsidiary redeemable units
and deferred trust units. The fair value adjustments to these financial instruments is dependent on the change in the Trust’s
REIT Unit price, and the adjustments may vary significantly year-over-year. The fair value adjustments on the interest rate swaps
are valued by qualified independent valuation professionals based on the present value of the estimated future cash flows
determined using observable yield curves, and the adjustments may vary significantly year-over-year.
The following table summarizes our fair value adjustments to financial instruments for the three months and years ended
December 31, 2019 and December 31, 2018:
Remeasurement of carrying value of subsidiary redeemable units
$
Remeasurement of carrying value of Deferred Unit Incentive Plan (“DUIP”)
Fair value adjustment on interest rate swaps
Fair value adjustment on conversion feature of convertible debentures
Total
$
2019
1,670 $
(90 )
2,734
—
4,314 $
2018
10,946 $
237
(2,307 )
—
8,876 $
Three months ended December 31,
Year ended December 31,
2018
(13,357 )
(829 )
(629 )
(2,305 )
(17,120 )
2019
(67,158 ) $
(3,140 )
(519 )
—
(70,817 ) $
Dream Industrial REIT 2019 Annual Report | 17
Net losses on transactions and other activities
The following table summarizes our net losses on transactions and other activities for the three months and years ended
December 31, 2019 and December 31, 2018:
Internal leasing costs
Foreign exchange loss(1)
Costs on sale of investment properties(2)
Debt settlement costs(3)
Transaction cost recovery (other)
Total
$
$
2019
(596 ) $
Three months ended December 31,
2018
(643 )
—
—
—
—
(643 )
(2,219 )
(409 )
(372 )
(226 )
(3,822 )
$
$
$
$
Year ended December 31,
2019
(2,321 )
(1,572 )
(438 )
(372 )
(226 )
(4,929 )
2018
(2,613 )
—
—
(1,932 )
151
(4,394 )
$
(1) The foreign exchange loss relates to capital transactions which do not form part of the Trust’s net investment in the U.S. operations. Accordingly, the impact
of such foreign exchange adjustments was added back in the determination of FFO (non-GAAP measure) in the respective periods.
(2) Costs on sale of investment properties consist of transaction costs, commissions and other expenses incurred in relation to the disposal of investment
properties.
(3) 2019 debt settlement costs relate to the discharge of mortgages on sold properties. 2018 debt settlement costs relate to the write-off of unamortized
financing costs and fair value adjustments associated with the early redemption of the 5.25% convertible debentures.
Current and deferred income taxes recovery (expense), net
Current and deferred income taxes expense, net for the three months and year ended December 31, 2019 increased by
$4.7 million and $7.2 million, respectively, compared to the prior year comparative quarter and year. The increases were
primarily driven by the difference between the fair value of our U.S. investment properties relative to the tax cost base.
Substantially all of the current and deferred income taxes expense for the three months and years ended December 31, 2019
and December 31, 2018 are deferred income taxes.
Income (loss) from discontinued operations
Given that the entire Eastern Canada region was included in assets held for sale at June 30, 2019 and subsequently disposed of
on July 31, 2019, the associated results of operations for the three months and years ended December 31, 2019 and
December 31, 2018 have been presented separately as income (loss) from discontinued operations.
For the three months ended December 31, 2019, the Trust recorded a loss from discontinued operations of $0.1 million,
comprising additional costs on sale of investment properties.
For the year ended December 31, 2019, income from discontinued operations was $2.7 million, comprising net rental income
of $10.8 million, offset by costs on sale of investment properties and debt settlement costs of $3.7 million, fair value adjustments
to investment properties of $2.4 million, and cumulative other items of $2.0 million.
Other comprehensive income (loss)
Other comprehensive loss for the three months ended December 31, 2019 was $5.9 million, and for the year ended
December 31, 2019, other comprehensive loss was $11.3 million, primarily due to the impact of the weaker U.S. dollar relative
to the Canadian dollar on our net U.S. investment.
Funds from operations (“FFO”)
FFO (including diluted FFO per Unit) is a non-GAAP measure used by management in evaluating the Trust's operating
performance. FFO per Unit is calculated as FFO divided by the weighted average number of Units. FFO and weighted average
number of Units are further defined in the section “Non-GAAP measures and other disclosures”.
Prior to the early redemption of the convertible debentures on August 2, 2018, the calculation of diluted FFO per Unit included
the impact of the assumed conversion of the outstanding convertible debentures into REIT Units. Correspondingly, for the year
ended December 31, 2018, the calculation of diluted FFO per Unit included the add-back of convertible debentures interest
expense of $4.2 million.
Dream Industrial REIT 2019 Annual Report | 18
FFO and diluted FFO per Unit for the three months and years ended December 31, 2019 and December 31, 2018 are shown in
the table below:
FFO
Add-back: Convertible debentures interest expense
Diluted FFO
Weighted average number of Units (in thousands)
FFO per Unit – diluted
$
Three months ended December 31,
2018
24,060 $
—
24,060 $
111,033
2019
25,809 $
—
25,809 $
143,175
0.18 $
0.22 $
$
$
Year ended December 31,
2018
88,166
4,185
92,351
107,788
0.86
2019
105,036 $
—
105,036 $
134,211
0.78 $
Diluted FFO per Unit for the three months and year ended December 31, 2019 was 18 cents and 78 cents, respectively, compared
to 22 cents and 86 cents, respectively, for the three months and year ended December 31, 2018. FFO per Unit was lower
primarily due to lower leverage, partially offset by higher comparative properties NOI (a non-GAAP measure) and net rental
income from our acquired properties.
Related party transactions
From time to time, Dream Industrial REIT and its subsidiaries enter into transactions with related parties that are generally
conducted on a cost-recovery basis or under normal commercial terms.
Agreements with Dream Asset Management Corporation (“DAM”)
The following table summarizes our fees paid to or received from DAM, including both continuing and discontinued operations
for the three months and years ended December 31, 2019 and December 31, 2018:
Three months ended December 31,
2018
2019
Year ended December 31,
2018
2019
Incurred under the Asset Management Agreement:
Asset management fee (included in general and administrative
expenses)
Acquisition fee (included in investment properties)
Expense reimbursements related to financing arrangements
Total costs incurred under the Asset Management Agreement
Total costs reimbursed under the Shared Services and Cost
Sharing Agreement
Total property management fees earned under the Property
Management Agreement
$
$
$
$
(1,250 ) $
(214 )
(110 )
(1,574 ) $
(1,210 ) $
(136 )
(75 )
(1,421 ) $
(5,190 ) $
(2,662 )
(380 )
(8,232 ) $
(4,621 )
(1,556 )
(369 )
(6,546 )
(207 ) $
(161 ) $
(716 ) $
(657 )
—
$
22
$
7
$
87
The Asset Management Agreement (“AMA”) with DAM provides for an incentive fee payable in an amount equal to 15% of the
Trust’s adjusted funds from operations (“AFFO”) per Unit as defined in the AMA, which includes gains on the disposition of any
properties in the year in excess of the hurdle amount initially set at 80 cents per Unit and which increases annually by 50% of
the increase in the consumer price index (“Hurdle Amount”).
The AMA has an initial term ending October 3, 2022 and is automatically renewed for further five-year terms unless and until
terminated in accordance with its terms. The AMA may be terminated by DAM at any time after the initial term. Other than in
respect of termination resulting from certain events of insolvency of DAM, on termination of the AMA, all accrued fees under
the AMA, including the incentive fee, are payable to DAM. In such circumstances or if the Trust is acquired, the incentive fee is
calculated as if all the Trust’s properties were sold on the applicable date.
Disposition gains in the AFFO calculation used for determining the incentive fee are based on the fair value of the Trust’s
investment properties, at the applicable date, relative to their historic purchase price. As at December 31, 2019, the historic
purchase price for the Trust’s investment portfolio, excluding assets held for sale, was $2.0 billion (December 31, 2018 –
$1.9 billion).
Dream Industrial REIT 2019 Annual Report | 19
For the most recently completed fiscal year ended October 3, 2019 for the AMA, the Hurdle Amount for the purpose of
calculating the incentive fee was $0.86 per Unit. As at December 31, 2019 and December 31, 2018, no incentive fees have been
paid or payable by the Trust to DAM.
The amount of the incentive fee payable by the Trust on any date will be contingent upon various factors, including, but not
limited to, changes in the Trust’s AFFO as defined in the AMA, movements in the fair value of investment properties, acquisitions
and dispositions, future foreign exchange rates, and changes in the total number of outstanding units of the Trust.
On February 1, 2019, the Property Management Agreement for Dream Industrial Management LP (“DIMLP”) to manage one
property on behalf of a subsidiary of DAM was terminated as the property is no longer owned by DAM.
Agreements with Dream Hard Assets Alternatives Trust (“DHAAT”)
The following table summarizes our fees received from DHAAT for the three months and years ended December 31, 2019 and
December 31, 2018:
Total revenue under lease agreements and the Property
Management Agreement
Three months ended December 31,
2018
2019
Year ended December 31,
2018
2019
$
8
$
37
$
119 $
151
The Trust had a co-ownership agreement to jointly own six properties at 50% ownership interest with a subsidiary of DHAAT and
had a Property Management Agreement to manage the co-owned properties. On August 30, 2019, the Trust completed the
acquisition of DHAAT’s remaining 50% interest in six investment properties in Regina, Saskatchewan. Concurrently, the Property
Management Agreement for DIMLP to manage the co-owned properties with DHAAT was terminated.
The Trust had lease agreements with a subsidiary of DHAAT to lease roof-top space. On October 29, 2019, the lease agreements
with DHAAT were assigned to a third party.
Agreements with Dream Office Real Estate Investment Trust (“Dream Office REIT”)
The following table summarizes the costs reimbursed to Dream Office REIT for the three months and years ended December 31,
2019 and December 31, 2018:
Total costs reimbursed under the Services Agreement
Three months ended December 31,
2018
(919 ) $
2019
(996 ) $
$
Year ended December 31,
2019
2018
(3,304 )
(4,037 ) $
As discussed in “Our Equity”, subsidiaries of Dream Office REIT are the holders of 100% of the outstanding LP B Units. Generally,
each subsidiary redeemable unit entitles the holder to a distribution equal to distributions declared on our REIT Units. In our
consolidated financial statements, distributions paid and payable on LP B Units are included as interest expense.
The following table summarizes our distributions paid and payable to subsidiaries of Dream Office REIT on its subsidiary
redeemable units for the three months and years ended December 31, 2019 and December 31, 2018:
Distributions paid and payable to Dream Office REIT on subsidiary
redeemable units
$
(3,344 ) $
(3,344 )
$
(13,376 ) $
(13,376 )
Three months ended December 31,
2018
2019
Year ended December 31,
2018
2019
Agreements with PAULS Corp
The following table summarizes our fees paid and costs reimbursed to an affiliate of PAULS Corp for the three months and years
ended December 31, 2019 and December 31, 2018:
Property management
Portfolio management
Leasing costs
Financing costs
Total costs incurred under the Property Management Agreement
Three months ended December 31,
2018
(100 ) $
(45 )
—
(10 )
(155 ) $
2019
(202 ) $
(159 )
(92 )
(55 )
(508 ) $
$
$
Year ended December 31,
2019
(733 ) $
(439 )
(133 )
(85 )
(1,390 ) $
2018
(336 )
(122 )
—
(49 )
(507 )
Dream Industrial REIT 2019 Annual Report | 20
SECTION III
INVESTMENT PROPERTIES
Investment properties continuity
Changes in the value of our investment properties by region, including assets held for sale, for the three months and year ended
December 31, 2019 are summarized in the following tables:
Three months ended
September 30,
2019
Property
acquisitions(1)
Property
dispositions
Building
improvements,
lease incentives
and initial direct
leasing costs
Fair value
adjustments
Amortization of
lease incentives,
foreign currency
translation and
other
adjustments
$ 630,818 $
Western Canada
721,487
Ontario
408,359
Québec
568,443
U.S.
Total investment properties $ 2,329,107 $
5,150 $
Total assets held for sale
$
— $
18,000
—
—
18,000 $
— $
(1,530 ) $
—
—
—
(1,530 ) $
(5,150 ) $
2,832 $
940
728
173
4,673 $
— $
(9,889 ) $
76,706
5,096
17,855
89,768 $
— $
(285 ) $
(72 )
(98 )
(10,899 )
(11,354 ) $
— $
(1) Includes transaction costs.
December 31,
2019
621,946
817,061
414,085
575,572
2,428,664
—
Year ended
Property
dispositions
and
reclassifications
to assets held
for sale, net
Building
improvements,
lease incentives
and initial direct
leasing costs
Fair value
adjustments
January 1,
2019
Property
acquisitions(1)
Amortization of
lease incentives,
foreign currency
translation and
other
adjustments
$ 627,354 $
Western Canada
610,470
Ontario
353,351
Québec
293,549
U.S.
253,687
Eastern Canada
Total investment properties $ 2,138,411 $
3,900 $
Total assets held for sale
$
8,263 $
62,010
33,720
272,700
—
376,693 $
— $
(8,030 ) $
(5,150 )
—
—
(254,970 )
(268,150 ) $
(4,484 ) $
10,451 $
6,058
3,669
699
3,321
24,198 $
1,058 $
(15,281 ) $
143,724
23,883
28,162
(1,941 )
178,547 $
(450 ) $
(1) Includes transaction costs.
Acquisitions
The following acquisitions were completed during the year ended December 31, 2019:
(811 ) $
(51 )
(538 )
(19,538 )
(97 )
December 31,
2019
621,946
817,061
414,085
575,572
—
(21,035 ) $ 2,428,664
—
(24 ) $
Midwest U.S. portfolio(2)
1602 Tricont Avenue, Whitby, Ontario
8820 Smith’s Mill Road, Columbus, Ohio
333 Wyecroft Road, Oakville, Ontario
1250–1280 Humber Place, Ottawa, Ontario
Saskatchewan portfolio(3)
300 Orenda Road, Brampton, Ontario
Total
Acquired GLA
(thousands of
sq. ft.)
3,523
257
264
43
233
59
97
4,476
Occupancy
at acquisition
(%)
91.1
98.1
100.0
100.0
100.0
87.0
100.0
92.7
WALT
at acquisition
(years)
3.8 $
7.7
6.8
3.4
4.5
3.1
7.0
4.3 $
Purchase
price(1)
Date acquired
237,486
March 1, 2019
April 30, 2019
35,800
31,857
June 4, 2019
7,000
June 13, 2019
32,800
July 22, 2019
8,148
August 30, 2019
17,420 December 16, 2019
370,511
(1) Excludes transaction costs of $6,182.
(2) Midwest U.S. portfolio includes 21 investment properties: four in Chicago, Illinois; two in Cincinnati, Ohio; 12 in Columbus, Ohio; two in Indianapolis, Indiana;
and one in Louisville, Kentucky.
(3) Saskatchewan portfolio includes 50% interest in six investment properties in Regina, Saskatchewan, previously co-owned with DHAAT, a related party of the
Trust.
Dream Industrial REIT 2019 Annual Report | 21
For the year ended December 31, 2018, the Trust completed acquisitions of five properties in the U.S. and one property in each
of Ontario and Québec for gross proceeds net of adjustments and before transaction costs totalling $243.1 million.
On January 22, 2020, the Trust announced its expansion into the European light industrial and logistics markets. Since
announcing our European expansion strategy, the Trust has completed approximately $52 million (€35 million) of acquisitions
in the Netherlands and approximately $15 million (€10 million) in Germany. Further, the Trust is in exclusive negotiations or
under contract on approximately $55 million (€38 million) of acquisitions in Germany and has waived conditions on
approximately $205 million (€140 million) of acquisitions in the Netherlands. Subject to satisfactory completion of due diligence,
the Trust expects to complete these acquisitions in the first half of 2020. Upon completion of these acquisitions, the Trust’s
European portfolio will comprise 3.2 million square feet of well-located, high-quality industrial assets totalling approximately
$327 million in gross asset value, representing 11% of the Trust’s overall investment property value as of December 31, 2019
including the Canadian and European acquisitions announced in 2020.
Subsequent to December 31, 2019, the Trust completed the following acquisitions in Canada, the Netherlands and Germany:
840 Trillium Drive, Kitchener, Ontario(2)
Berkshire portfolio, Kitchener, Ontario(2)
1995 Markham Road, Scarborough, Ontario(2)
Exportweg 20–22, Waddinxveen, Netherlands(3)
Het Sterrenbeeld 12–16, Den Bosch, Netherlands(3)
Robert-Bosch-Straße 7–9, Dietzenbach, Germany(3)
Heibloemweg 10, Helmond, Netherlands(3)
Total
Acquired GLA
(thousands of
sq. ft.)
39
566
241
169
95
160
117
1,387
Occupancy
at acquisition
(%)
100.0
100.0
100.0
100.0
100.0
75.1
100.0
97.1
WALT
at acquisition
(years)
11.0 $
2.9
7.0
14.8
6.5
10.7
9.0
7.0 $
Purchase
price(1)
5,700
62,500
33,100
27,355
10,700
14,950
13,598
167,903
Date acquired
January 13, 2020
January 17, 2020
January 22, 2020
January 22, 2020
January 28, 2020
January 31, 2020
February 5, 2020
(1) Gross purchase price before adjustments and transaction costs.
(2) As at December 31, 2019, the Trust had a commitment to purchase the property.
(3) Acquisitions in the Netherlands and Germany were settled in euros and translated into Canadian dollars as at the respective transaction dates.
Including the Ontario property that closed on December 16, 2019 and the Ontario properties that closed subsequent to
December 31, 2019, the Trust has completed or is under contract to acquire approximately $170 million of properties comprising
1.3 million square feet of GLA in Ontario and Québec at a weighted average cap rate of 4.6%.
Assets held for sale
During the year ended December 31, 2019, the Trust classified as assets held for sale all of the investment properties in the
Eastern Canada region and a property located in London, Ontario. The properties were subsequently sold on July 31, 2019 and
November 28, 2019, respectively. Accordingly, as at December 31, 2019, the Trust had no investment properties classified as
assets held for sale.
For the year ended December 31, 2018, the Trust had one property in Eastern Canada classified as assets held for sale of
$3.9 million.
Dispositions
For the year ended December 31, 2019, the Trust disposed of the following properties:
9601 156th Avenue, Grande Prairie, Alberta
Eastern Canada portfolio(2)
2190 Industrial Drive, Regina, Saskatchewan
439 Sovereign, London, Ontario
Total
GLA
(thousands of sq. ft.)
27 $
2,779
12
78
2,896 $
Sale price(1)
6,500
259,454
1,530
5,150
272,634
Date disposed
May 24, 2019
July 31, 2019
November 8, 2019
November 28, 2019
(1) Sale price reflects gross proceeds net of adjustments and before transaction costs.
(2) Consists of 38 investment properties in Dartmouth, Nova Scotia, and Moncton, New Brunswick.
For the year ended December 31, 2018, there were no dispositions completed by the Trust.
Dream Industrial REIT 2019 Annual Report | 22
Fair value adjustments to investment properties
For the three months ended December 31, 2019, the Trust recorded a fair value gain of $89.8 million, mainly driven by fair value
gains in the Ontario, Québec and U.S. regions of $76.7 million, $5.1 million and $17.9 million, respectively. The fair value gains
in Ontario and Québec were largely due to higher market rent assumptions and cap rate compression, while in the U.S., the fair
value gains were mainly due to cap rate compression. Partially offsetting these fair value gains were fair value losses recognized
in the Western Canada region of $9.9 million, primarily reflecting lower market rent assumptions and increased downtime in
our leasing assumptions.
For the year ended December 31, 2019, the Trust recorded a fair value gain of $180.5 million in continuing operations, mainly
driven by fair value gains in the Ontario, Québec and U.S. regions of $143.7 million, $23.9 million and $28.2 million, respectively,
partially offset by a fair value loss in the Western Canada region of $15.3 million. The fair value adjustments in the respective
regions were due to the same reasons noted above, offset by the impact of the write-off of transaction costs on acquired
properties in the respective regions during the year.
Foreign currency translation
For the three months and year ended December 31, 2019, the foreign currency translation impact on our U.S. portfolio was a
reduction in value by $11.3 million and $20.7 million, respectively, due to a weaker U.S. dollar relative to the Canadian dollar in
the respective periods.
Significant assumptions used in the valuation of investment properties
The Trust values its investment properties using both the cap rate method and the discounted cash flow method. The results of
both methods are evaluated by considering the range of values calculated under both methods on a property by property basis.
The significant valuation metrics used in the cap rate method are cap rates. The following table summarizes cap rates by region
as at December 31, 2019 and December 31, 2018:
Western Canada
Ontario
Québec
Eastern Canada
Total Canada
Total U.S.
Total portfolio
December 31, 2019
Range (%)
5.75–7.50
4.50–7.50
5.50–6.50
—
4.50–7.50
5.75–6.75
4.50–7.50
Weighted
average (%)(2)
6.60
5.23
6.13
—
5.90
6.12
5.95
Total portfolio(1)
December 31, 2018
Weighted
average (%)(2)
6.62
5.58
6.25
7.22
6.29
6.33
6.29
Range (%)
6.00–8.00
5.00–7.50
6.00–7.00
6.50–9.25
5.00–9.25
6.00–6.60
5.00–9.25
(1) Excludes assets held for sale at period-end and investment properties acquired during the quarter as applicable.
(2) Weighted average percentage based on investment property fair value.
The significant valuation metrics used in the discounted cash flow method as at December 31, 2019 and December 31, 2018 are
set out in the table below:
Discount rate
Terminal cap rate
December 31, 2019
Weighted
average (%)(2)
6.92
6.28
Range (%)
5.38–8.75
5.00–8.00
Total portfolio(1)
December 31, 2018
Weighted
average (%)(2)
7.16
6.55
Range (%)
6.00–9.00
5.50–8.00
(1) Excludes assets held for sale at period-end and investment properties acquired during the quarter as applicable.
(2) Weighted average percentage based on investment property fair value.
Dream Industrial REIT 2019 Annual Report | 23
Valuations of externally appraised properties
The following table summarizes the investment properties valued by qualified external valuation professionals for the years
ended December 31, 2019 and December 31, 2018:
Investment properties valued by qualified external valuation professionals
Number of investment properties valued by qualified external valuation professionals
Percentage of the total investment property values
$
December 31,
2019
547,585 $
59
23%
December 31,
2018
655,620
47
31%
Building improvements
Building improvements represent investments made in our investment properties to ensure optimal building performance, to
improve the experience of our tenants, as well as to reduce operating costs. In order to retain desirable rentable space and to
generate adequate revenue over the long term, we must maintain or, in some cases, improve each property’s condition to meet
market demand.
Recoverable capital expenditures are recovered from tenants in accordance with their leases over the useful life of the building
improvements plus an imputed interest charge and management fee.
Non-recoverable capital expenditures are not recovered from tenants and are costs incurred to repair or maintain the property’s
structural condition and bring properties up to the Trust’s operating standards.
Value-add capital expenditures are not recovered from tenants and include upgrades completed on certain properties that are
expected to increase the Trust’s ability to attract tenants and obtain higher rental rates.
The following table summarizes building improvements incurred for the three months and years ended December 31, 2019 and
December 31, 2018:
Recoverable capital expenditures
Non-recoverable capital expenditures
Value-add capital expenditures
Building improvements – continuing operations(1)
Add: Building improvements – Eastern Canada(2)
Total building improvements
Three months ended December 31,
2019
426 $
204
492
1,122
—
1,122 $
$
$
2018
1,164 $
94
1,419
2,677
455
3,132 $
Year ended December 31,
2018
7,880
673
2,775
11,328
2,496
13,824
2019
6,370 $
633
1,844
8,847
933
9,780 $
(1) Excludes Eastern Canada portfolio in the current and comparative period.
(2) Includes activity prior to the Eastern Canada region being reclassified to assets held for sale.
Lease incentives and initial direct leasing costs
Refer to the section “Lease incentives and initial direct leasing costs” under the heading “Our Operations” for further discussion.
OUR FINANCING
Our discussion of financing activities includes debt related to assets held for sale at the end of each period as applicable.
Our debt strategy includes managing our maturity schedule to help mitigate interest rate risk and limit exposure in any given
year, as well as fixing the rates and extending loan terms as long as possible when interest rates are favourable.
Dream Industrial REIT 2019 Annual Report | 24
Debt summary
The key performance indicators in the management of our debt are as follows:
Financing metrics(1)
Total debt
Weighted average face interest rate on debt (period-end)(2)
Weighted average remaining term to maturity on debt (years)
Interest coverage ratio (times)(3)(4)
Level of debt (net debt-to-assets ratio)(3)
Net debt-to-adjusted EBITDAFV (years)(3)
Unencumbered assets(3)(4)
Available liquidity(3)
As at
December 31, 2019 December 31, 2018
$
$
$
1,014,568 $
3.59%
5.5
3.8
23.7%
4.3
96,251 $
591,537 $
937,730
3.65%
4.4
3.3
43.5%
7.2
190,694
103,162
(1) Financing metrics include assets and liabilities classified as held for sale and income from discontinued operations as applicable.
(2) Weighted average face interest rate on debt is calculated as the weighted average face interest rate of all interest bearing debt as at period-end.
(3) Interest coverage ratio, level of debt (net debt-to-assets ratio), net debt-to-adjusted EBITDAFV, unencumbered assets and available liquidity are non-GAAP
measures. The descriptions and calculations of these measures are included under the heading “Non-GAAP Measures and Other Disclosures”.
(4) Interest coverage ratio and unencumbered assets (non-GAAP measures) have been restated in the comparative periods to conform to current period
presentation. For further details, please refer to the section “Non-GAAP Measures and Other Disclosures” under the headings “Interest coverage ratio” and
“Unencumbered assets”.
Overall debt metrics on a year-over-year basis improved mainly due to financing, equity offering and acquisition activities during
the year, lowering the cost of borrowing, extending the debt maturity periods and funding acquisitions with net proceeds from
equity offerings and dispositions.
Liquidity and capital resources
Dream Industrial REIT’s primary sources of capital are cash generated from (utilized in) operating activities, credit facilities,
mortgage financing and refinancing, and equity and debt issues. Our primary uses of capital include the payment of
distributions, costs of attracting and retaining tenants, recurring property maintenance, major property improvements, debt
principal repayments, interest payments and property acquisitions. We expect to meet all of our ongoing obligations with
current cash and cash equivalents, cash generated from operations, draws on the revolving credit facility, conventional mortgage
refinancings and, as growth requires and when appropriate, new equity or debt issues.
In our consolidated financial statements, our current assets exceed our current liabilities by $349.0 million. Typically, real estate
entities seek to address liquidity needs by having a balanced debt maturity schedule, undrawn credit facilities and a pool of
unencumbered assets. We are able to use our revolving credit facility on short notice, which eliminates the need to hold a
significant amount of cash and cash equivalents on hand. Working capital balances fluctuate significantly from period to period
depending on the timing of receipts and payments. Scheduled principal repayments that are due within one year total
$27.5 million, and debt maturities that are due within one year total $34.8 million. The debt maturities are typically refinanced
with mortgages of terms between five and 10 years. Amounts payable outstanding at the end of any reporting period depend
primarily on the timing of leasing costs and capital expenditures incurred, as well as the impact of transaction costs incurred on
any acquisitions or dispositions completed during the reporting period. With our balanced debt maturity schedule, undrawn
revolving credit facility of $150.0 million, cash and cash equivalents of $441.5 million and unencumbered assets pool of
$96.3 million, we have sufficient liquidity and capital resources as at December 31, 2019.
Financing activities
The following table highlights new mortgage financing activities completed for the year ended December 31, 2019:
Date of financing
New mortgages
January 11, 2019
July 30, 2019
December 5, 2019
Assumed mortgages
August 30, 2019
(1) Excludes financing costs.
Location of secured properties
Amount(1)
Columbus, Ohio
Ontario, Western Canada
Midwest, U.S. portfolio
Western Canada
$
48,528
50,000
171,262
5,384
Term to
maturity
(years)
Face
interest rate
10.0
10.0
10.1
1.3
4.57 %
3.17 %
3.10 %
3.25 %
Dream Industrial REIT 2019 Annual Report | 25
On July 30, 2019, in connection with the sale of the Eastern Canada portfolio, the Trust amended a portfolio mortgage which
was partially secured by certain Eastern Canada assets, totalling $41.1 million at an annual interest rate of 3.68%. The Eastern
Canada properties were discharged and the Trust concurrently entered into a new $50.0 million portfolio mortgage secured by
the remaining investment properties, for a 10-year term at an annual interest rate of 3.17%. The portfolio mortgage is interest-
only during the first three years.
On July 31, 2019, the Trust discharged Eastern Canada portfolio mortgages totalling $36.2 million. In addition, the Trust
substituted collateral on one mortgage totalling $10.5 million and two portfolio mortgages where the pro-rata allocation to
Eastern Canada assets was $14.2 million with all terms remaining unchanged.
On August 30, 2019, in connection with the acquisition of the remaining 50% interest in six investment properties in Regina,
Saskatchewan, previously co-owned with a related party, DHAAT, the Trust assumed the remaining 50% interest in mortgages
associated with the properties, totalling $5.4 million at an annual interest rate of 3.25%.
During the year ended December 31, 2018, the Trust completed new mortgage financing totalling $241.0 million with an average
term to maturity of 7.5 years and weighted average face interest rate of 3.86%.
Demand revolving credit facilities
On March 15, 2019, the Trust amended its existing revolving credit facility by increasing the borrowing limit from $125 million
to $150 million and extending the maturity date from June 30, 2020 to June 30, 2021. The interest rate remained at bankers’
acceptances (“BA”), bearing interest at the BA rate plus 1.70% or Canadian prime rate plus 0.70% or U.S. LIBOR rate plus 1.70%
or U.S. base rate plus 0.70%.
On July 31, 2019, the Trust removed the five secured investment properties in Eastern Canada from the revolving credit facility
and on September 27, 2019, the Trust replaced them with two investment properties in Ontario and two investment properties
in Western Canada. The borrowing limit remained at $150 million.
Refer to Note 11 of the consolidated financial statements for details on our demand revolving credit facilities.
Composition and continuity of total debt
Refer to Notes 10 and 11 of the consolidated financial statements for details on the composition and continuity of our debt.
Our current total debt profile is balanced with maturities well-distributed over the next 10 years. The following is our total debt
as at December 31, 2019:
2020
2021
2022
2023
2024
2025–2030
Total
Unamortized financing costs
Unamortized fair value adjustments
Total debt
Debt balance
due at maturity
Scheduled principal
repayments on
debt maturing in
future periods
$
$
34,758 $
143,935
89,484
138,704
62,838
398,492
868,211 $
27,539 $
25,228
20,628
16,012
14,449
49,625
153,481 $
$
Weighted average face
rate on balance due
at maturity
3.14%
4.10%
3.07%
3.63%
3.68%
3.56%
3.60%
Amount
62,297
169,163
110,112
154,716
77,287
448,117
1,021,692
(8,073)
949
1,014,568
Commitments and contingencies
We are contingently liable with respect to guarantees that are issued in the normal course of business and with respect to
litigation and claims that may arise from time to time. In the opinion of management, any liability that may arise from such
contingencies would not have a material adverse effect on our consolidated financial statements.
Dream Industrial REIT 2019 Annual Report | 26
OUR EQUITY
Total equity
Our discussion of equity includes LP B Units, which are economically equivalent to REIT Units. However, pursuant to IFRS, the
LP B Units are classified as a liability in our consolidated financial statements.
December 31, 2019
REIT Units and Unitholders’ equity
Retained earnings
Accumulated other comprehensive income (loss)
Total equity per consolidated financial statements
Add: LP B Units
Total equity (including LP B Units)(1)
NAV per Unit(1)
Number of Units
134,801,881 $
—
—
134,801,881
18,551,855
153,353,736 $
$
Amount Number of Units
92,062,659 $
—
—
92,062,659
18,551,855
110,614,514 $
$
1,372,564
187,443
(435 )
1,559,572
243,771
1,803,343
11.76
As at
December 31, 2018
Amount
887,757
90,621
10,947
989,325
176,613
1,165,938
10.54
(1) Total equity (including LP B Units) and NAV per Unit are non-GAAP measures defined in the section “Non-GAAP Measures and Other Disclosures”.
As at December 31, 2019, NAV per Unit was $11.76 compared to $10.54 at December 31, 2018, up $1.22 or 11.6%. The year-
over-year increase in NAV per Unit largely reflects an increase in investment property values due to higher market rents, lower
capitalization rates, and strong leasing activity in the Ontario and Québec regions.
Our Declaration of Trust authorizes the issuance of an unlimited number of two classes of units: REIT Units and Special
Trust Units.
The Special Trust Units may only be issued to holders of LP B Units, are not transferable separately from these Units and are
used to provide voting rights with respect to Dream Industrial REIT to persons holding LP B Units. The LP B Units are held by
wholly owned subsidiaries of Dream Office REIT. Both the REIT Units and the Special Trust Units entitle the holder to one vote
for each Unit at all meetings of the unitholders. The LP B Units are exchangeable on a one-for-one basis for REIT Units at the
option of the holder. The LP B Units and corresponding Special Trust Units together have economic and voting rights equivalent
in all material respects to REIT Units.
Pursuant to the Distribution Reinvestment and Unit Purchase Plan (“DRIP”) and the distribution reinvestment provisions of the
amended and restated limited partnership agreement governing Dream Industrial LP, the following table summarizes
the number of REIT Units issued and cost of issuing the REIT Units to the subsidiaries of Dream Office REIT for the three months
and years ended December 31, 2019 and December 31, 2018:
REIT Units issued to Dream Office REIT
Total cost of REIT Units issued to Dream Office REIT
Three months ended December 31,
2018
468,373
4,613 $
2019
362,315
4,906 $
$
Year ended December 31,
2019
2018
1,591,434
1,769,595
17,914
19,222 $
The table below summarizes Dream Office REIT’s ownership of the Trust as at December 31, 2019 and December 31, 2018:
Number of REIT Units held by Dream Office REIT
Number of LP B Units held by Dream Office REIT
Total number of Units held by Dream Office REIT
Dream Office REIT’s percentage ownership of the Trust
December 31, 2019
8,792,170
18,551,855
27,344,025
17.8 %
As at
December 31, 2018
7,200,736
18,551,855
25,752,591
23.3 %
Subsequent to the completion of the public offering of 16,859,000 REIT Units by the Trust on February 12, 2020, Dream Office
REIT’s ownership decreased to 16.1%.
Dream Industrial REIT 2019 Annual Report | 27
Continuity of equity
The following table summarizes the changes in our outstanding equity:
Total Units outstanding on January 1, 2019
Units issued pursuant to public offerings and private placement
Units issued pursuant to DRIP
Units issued pursuant to DUIP and Unit Purchase Plan
Total Units outstanding on December 31, 2019
Percentage of all Units
Units issued pursuant to public offering
Units issued pursuant to DRIP
Units issued pursuant to DUIP and Unit Purchase Plan
Total Units outstanding on February 18, 2020(1)
Percentage of all Units
(1) The date of this report.
REIT Units
92,062,659
39,436,500
3,170,829
131,893
134,801,881
87.9%
16,859,000
547,531
2,143
152,210,555
89.1%
LP B Units
18,551,855
—
—
—
18,551,855
12.1%
—
—
—
18,551,855
10.9%
Total Units
110,614,514
39,436,500
3,170,829
131,893
153,353,736
100.0%
16,859,000
547,531
2,143
170,762,410
100.0%
Public offerings and private placement of REIT Units
The following table summarizes the public offerings of REIT Units issued for the year ended December 31, 2019:
Date of public offering
February 13, 2019(1)
April 25, 2019(2)
December 11, 2019(3)
Total
Number of REIT Units
Unit price
Gross proceeds
13,800,000 $
12,477,500
12,834,000
39,111,500
10.45 $
11.55
13.45
$
144,210 $
144,115
172,617
460,942 $
Issue costs
6,408
6,405
7,565
20,378
(1) Includes 1,800,000 REIT Units issued pursuant to the exercise of the over-allotment option granted to the underwriters.
(2) Includes 1,627,500 REIT Units issued pursuant to the exercise of the over-allotment option granted to the underwriters.
(3) Includes 1,674,000 REIT Units issued pursuant to the exercise of the over-allotment option granted to the underwriters.
On December 19, 2019, the Trust completed a private placement to sell an aggregate of 325,000 REIT Units to Michael J. Cooper,
Trustee, and Brian Pauls, Chief Executive Officer and Trustee, at a price of $13.45 per REIT Unit, for gross proceeds of $4.4 million.
Subsequent to year-end on February 12, 2020, the Trust completed a public offering of 16,859,000 REIT Units at a price of $13.65
per REIT Unit for gross proceeds of $230.1 million, including 2,199,000 REIT Units issued pursuant to the exercise of the over-
allotment option granted to the underwriters.
The following table summarizes the public offering of REIT Units issued for the year ended December 31, 2018:
Date of public offering
June 29, 2018(1)
Number of REIT Units
Unit price
Gross proceeds
13,915,000 $
10.35 $
144,020 $
Issue costs
6,388
(1) Includes 1,815,000 REIT Units issued pursuant to the exercise of the over-allotment option granted to the underwriters.
Short form base shelf prospectus
On October 15, 2019, the Trust filed and obtained a receipt for a final short form base shelf prospectus dated October 11, 2019,
which is valid for a 25-month period, during which time the Trust may, from time to time, offer and issue REIT Units, subscription
receipts and debt securities, or any combination thereof, having an aggregate offering price of up to $2 billion. As at
December 31, 2019, $172.6 million of REIT Units have been issued under the current base shelf prospectus. On February 12,
2020, the Trust issued a further $230.1 million of REIT Units under the current base shelf prospectus, bringing the total to
$402.7 million. The issuance is pursuant to the current base shelf prospectus as supplemented by the prospectus supplement.
Distribution policy
Dream Industrial REIT’s Declaration of Trust provides the Board of Trustees with the discretion to determine the percentage
payout of income that would be in the best interest of the Trust.
We currently pay monthly distributions of $0.05833 per REIT Unit, or $0.70 per REIT Unit on an annual basis. Similar to other
non-GAAP measures such as total equity (including LP B Units), our discussion of distributions includes LP B Units, which are
economically equivalent to REIT Units. However, pursuant to IFRS, the LP B Units are classified as a liability in our consolidated
financial statements.
Dream Industrial REIT 2019 Annual Report | 28
The following table summarizes the total distributions and DRIP participation rate for the three months and years ended
December 31, 2019 and December 31, 2018:
Three months ended December 31, 2019
% of total
Amount
Three months ended December 31, 2018
% of total
Amount
Distributions reinvested less 3% bonus distribution
(DRIP participation rate)(1)
Distributions paid in cash
Total distributions excluding 3% bonus distribution
3% bonus distribution
Total distributions(1)
$
$
10,497
14,757
25,254
307
25,561
41.6 % $
58.4 %
100.0 %
$
41.1 %
58.9 %
100.0 %
7,939
11,369
19,308
229
19,537
(1) Total distributions and DRIP participation rate are non-GAAP measures. See “Non-GAAP Measures and Other Disclosures” for a description of these non-
GAAP measures.
Distributions reinvested less 3% bonus distribution
(DRIP participation rate)(1)
Distributions paid in cash
Total distributions excluding 3% bonus distribution
3% bonus distribution
Total distributions(1)
$
$
Year ended December 31, 2019
% of total
Amount
Year ended December 31, 2018
% of total
Amount
38,169
56,686
94,855
1,131
95,986
40.2 % $
59.8 %
100.0 %
$
39.0 %
61.0 %
100.0 %
28,207
44,196
72,403
824
73,227
(1) Total distributions and DRIP participation rate are non-GAAP measures. See “Non-GAAP Measures and Other Disclosures” for a description of these non-
GAAP measures.
Cash flows from operating activities and total distributions (a non-GAAP measure)
The Trust anticipates that future cash flows generated from (utilized in) operating activities may be less than total distributions
(a non-GAAP measure). With a conservative balance sheet, significant liquidity and a plan to improve and grow our portfolio,
the Trust does not anticipate suspending the cash distributions in the foreseeable future.
To the extent that cash generated from (utilized in) operating activities may be less than the total distributions (a non-GAAP
measure), the Trust will fund the shortfalls with cash and cash equivalents on hand and with the amounts available on the
revolving credit facility. The use of the revolving credit facility may involve risks compared with using cash and cash equivalents on
hand as a source of funding, such as the risk that interest rates may rise in the future, which may make it more expensive for the
Trust to borrow under the revolving credit facility, and the risk associated with increasing the overall indebtedness of the Trust.
In the event that shortfalls exist, the Trust does not anticipate cash distributions will be suspended in the foreseeable future but
does expect that there could be timing differences between the execution of our acquisition strategy and asset recycling
opportunities and the redeployment of capital raised from equity offerings. Accordingly, to the extent there are shortfalls,
distributions may be considered an economic return of capital. The Trust determines the distribution rate by, among other
considerations, its assessment of cash flows generated from (utilized in) operating activities. Dream Industrial REIT’s Declaration
of Trust provides the Board of Trustees with the discretion to determine the percentage payout of income that would be in the
best interest of the Trust.
In any given period, the Trust anticipates that net income will continue to vary from total distributions (a non-GAAP measure)
as net income includes non-cash items such as fair value adjustments to investment properties and financial instruments.
Accordingly, the Trust does not use net income as a proxy for determining distributions.
In any given period, actual cash flows generated from (utilized in) operating activities may differ from total distributions (a non-
GAAP measure), primarily due to fluctuations in non-cash working capital and the impact of leasing costs, which fluctuate with
lease maturities, renewal terms, the type of asset being leased, and when tenants fulfill the terms of their respective lease
agreements. These seasonal fluctuations, or the unpredictability of when leasing costs are incurred, are funded with our cash
and cash equivalents on hand and, if necessary, with our existing revolving credit facility.
Dream Industrial REIT 2019 Annual Report | 29
The following table summarizes net income, cash flows generated from (utilized in) operating activities (included in the
consolidated financial statements), and total distributions (a non-GAAP measure) for the three months and years ended
December 31, 2019 and December 31, 2018:
Net income
Cash generated from operating activities
Total distributions(1)
$
Three months ended December 31,
2018
66,455 $
23,673
19,537
2019
106,642 $
24,716
25,561
Year ended December 31,
2018
157,528
77,854
73,227
2019
179,432 $
84,595
95,986
(1) Total distributions is a non-GAAP measure. See “Non-GAAP Measures and Other Disclosures” under the heading “Total distributions”.
As required by National Policy 41-201, “Income Trusts and Other Indirect Offerings”, the following table outlines the differences
between net income and total distributions (a non-GAAP measure), as well as the differences between cash generated from
(utilized in) operating activities and total distributions (a non-GAAP measure), in accordance with the guidelines.
Excess of net income over total distributions(1)
Excess (shortfall) of cash generated from operating activities
over total distributions(1)
Three months ended December 31,
2018
46,918 $
2019
81,081 $
$
Year ended December 31,
2018
84,301
2019
83,446 $
(845 )
4,136
(11,391 )
4,627
(1) Total distributions is a non-GAAP measure. See “Non-GAAP Measures and Other Disclosures” under the heading “Total distributions”.
For the three months and year ended December 31, 2019, net income exceeded total distributions (non-GAAP measure) by
$81.1 million and $83.4 million, respectively, primarily due to the impact of non-cash items such as fair value adjustments to
investment properties and fair value adjustments to financial instruments. For the three months and year ended December 31,
2018, net income exceeded total distributions (non-GAAP measure) by $46.9 million and $84.3 million, respectively, due to the
same reasons noted above.
For the three months and year ended December 31, 2019, total distributions (a non-GAAP measure) exceeded cash
generated from operating activities by $0.8 million and $11.4 million, respectively, due to timing differences between the
realization of working capital, investment in lease incentives and initial direct leasing costs, and the redeployment of capital
raised from the February 2019, April 2019 and December 2019 equity offerings. For the three months and year ended
December 31, 2018, cash generated from operating activities exceeded total distributions (a non-GAAP measure) by $4.1 million
and $4.6 million, respectively.
Of the total distributions (a non-GAAP measure) declared for the three months and year ended December 31, 2019,
$10.8 million and $39.3 million, respectively, were reinvested through DRIP (including 3% bonus distributions). Over time,
reinvestments pursuant to the DRIP will increase the number of Units outstanding, which may result in upward pressure on the
total amount of cash distributions. Our Declaration of Trust provides our Board of Trustees with the discretion to determine the
percentage payout of income that would be in the best interest of the Trust, which allows for any unforeseen expenditures and
the variability in cash distributions as a result of additional Units issued pursuant to the Trust’s DRIP.
Dream Industrial REIT 2019 Annual Report | 30
SECTION IV
SELECTED ANNUAL INFORMATION
The following table provides selected financial information for the past three years:
Investment properties revenue(1)
Income before income taxes (continuing and discontinued operations)
Net income
Total assets
Non-current financial liabilities
Distributions per Unit
Distributions declared(2)
Units outstanding:
REIT Units
LP B Units
2019
195,331 $
187,890
179,432
2,892,891
1,230,916
0.70 $
95,986 $
2018
160,443 $
158,764
157,528
2,160,575
1,059,289
0.70 $
73,227 $
$
$
$
2017
147,940
34,787
34,659
1,807,751
957,650
0.70
57,818
134,801,881
18,551,855
92,062,659
18,551,855
75,104,843
18,551,855
(1) Given that the entire Eastern Canada segment was classified as assets held for sale at the end of June 30, 2019 and subsequently sold on July 31, 2019, the
associated results of operations were presented separately as income (loss) from discontinued operations in the consolidated statements of comprehensive
income. Accordingly, the historical financial information has been restated to conform to current period presentation.
(2) Includes distributions on LP B Units.
Over the past three years, our balance sheet and income statement have grown reflecting our strategy to grow and upgrade the
quality of our portfolio by investing in the Trust’s target markets. Refer to the remaining sections of the MD&A for more detailed
analysis and discussions of the Trust’s key financial information.
Dream Industrial REIT 2019 Annual Report | 31
QUARTERLY INFORMATION
The following tables show quarterly information since January 1, 2018:
Key portfolio, leasing, financing and capital information
Portfolio(1)
Number of properties
GLA (in millions of sq. ft.)
Leasing(1)
Occupancy rate – in-place and committed
(period-end)
Occupancy rate – in-place (period-end)
Tenant retention ratio
Average in-place and committed base
Q4
Q3
Q2
209
21.9
209
21.8
209
21.6
2019
Q1
244
23.7
Q4
Q3
Q2
223
20.2
222
20.1
219
19.1
2018
Q1
219
19.1
95.8 %
94.9 %
85.3 %
96.2 %
95.8 %
46.5 %
96.9 %
96.3 %
82.0 %
96.5 %
95.3 %
72.6 %
97.1 %
95.7 %
74.7 %
96.8 %
95.5 %
78.2 %
96.6 %
95.2 %
75.4 %
97.1 %
96.0 %
82.7 %
rent per sq. ft. – Canada (period-end) $
7.43 $
7.39 $
7.29 $
7.26 $
7.26 $
7.22 $
7.16 $
7.16
Average in-place and committed base
rent per sq. ft. – U.S. (US$) (period-end) $
3.87 $
3.85 $
3.81 $
3.81 $
3.93 $
3.93 $
3.55 $
3.55
Financing(2)
Weighted average face interest rate on
debt (period-end)(3)
Weighted average remaining term to
maturity on debt (years)
Interest coverage ratio (times)(4)(5)
Level of debt (net debt-to-assets ratio)(4)
Net debt-to-adjusted EBITDAFV (years)(4)
Unencumbered assets (in millions)(4)(5)
Available liquidity(4)
Capital
Total number of Units (in millions)(6)
Net asset value (“NAV”) per Unit(4)
$
$
$
3.59 %
3.69 %
3.69 %
3.72 %
3.65 %
3.62 %
3.80 %
3.77 %
5.5
3.8
23.7 %
4.3
96.3 $
591.5 $
4.9
3.8
31.4 %
5.4
345.3 $
280.1 $
4.4
3.7
37.4 %
6.4
381.1 $
95.4 $
4.4
3.4
42.4 %
7.1
318.3 $
77.2 $
4.4
3.3
43.5 %
7.2
190.7 $
103.2 $
4.3
3.2
44.3 %
7.0
205.8 $
86.7 $
4.1
3.1
41.4 %
6.8
90.3 $
320.2 $
3.9
3.2
49.4 %
7.8
218.9
94.7
153.4
11.76 $
139.4
11.09 $
138.5
11.04 $
125.3
10.61 $
110.6
10.54 $
109.8
10.12 $
109.1
10.05 $
94.6
9.85
(1) Total portfolio and leasing metrics exclude assets held for sale at the end of each period as applicable.
(2) Financing metrics include assets and liabilities classified as held for sale and income (loss) from discontinued operations at the end of each period as
applicable.
(3) Weighted average face interest rate on debt is calculated as the weighted average face interest rate of all interest bearing debt.
(4) Interest coverage ratio, level of debt (net debt-to-assets ratio), net debt-to-adjusted EBITDAFV, unencumbered assets, available liquidity and NAV per Unit
are non-GAAP measures. See “Non-GAAP Measures and Other Disclosures” for a description of these non-GAAP measures.
(5) Interest coverage ratio and unencumbered assets (non-GAAP measures) have been restated in the comparative periods to conform to current period
presentation. For further details, please refer to “Non-GAAP Measures and Other Disclosures” under the headings “Interest coverage ratio” and
“Unencumbered assets”.
(6) Total number of Units includes 18.6 million LP B Units, which are classified as a liability under IFRS.
Dream Industrial REIT 2019 Annual Report | 32
Results of operations
Given that the entire Eastern Canada segment was classified as assets held for sale at the end of June 30, 2019 and subsequently
sold on July 31, 2019, the associated results of operations were presented separately as income (loss) from discontinued
operations in the consolidated statements of comprehensive income for the three months and years ended December 31, 2019
and December 31, 2018. The trailing quarters presented below were also restated to conform to current period presentation.
Investment properties revenue
Investment properties operating expenses
Net rental income
Other income
Other expenses
Fair value adjustments and net losses on
Q3
Q2
Q4
2019
2018
Q1
Q1
$ 50,984 $ 49,511 $ 49,796 $ 45,040 $ 41,942 $ 39,495 $ 39,221 $ 39,785
(12,138 )
27,647
94
(14,328 )
(14,760 )
36,224
959
(15,253 )
(11,799 )
30,143
50
(13,819 )
(13,341 )
31,699
210
(14,598 )
(14,611 )
35,185
198
(15,636 )
(10,769 )
28,726
343
(14,171 )
(11,502 )
27,719
170
(15,537 )
(13,593 )
35,918
543
(14,960 )
Q4
Q2
Q3
transactions and other activities
Income (loss) before income taxes and
90,260
(21,654 )
64,731
(28,595 )
46,763
13,407
(590 )
27,214
discontinued operations
112,190
(153 )
84,478
(11,284 )
63,137
28,305
11,762
40,627
Current and deferred income taxes
(expense) recovery, net
Income (loss) from continuing
operations, net of taxes
Income (loss) from discontinued
operations, net of taxes
Net income (loss)
Other comprehensive income (loss)
Unrealized gain (loss) on foreign
currency translation, net of taxes
Unrealized gain (loss) on effective
interest rate hedge, net of taxes
Comprehensive income (loss)
(5,404 )
(503 )
(1,977 )
(574 )
(743 )
778
(952 )
(319 )
106,786
(656 )
82,501
(11,858 )
62,394
29,083
10,810
40,308
(144 )
$ 106,642 $
(2,310 )
(2,966 ) $ 84,017 $
1,516
3,597
4,563
877
(8,261 ) $ 66,455 $ 29,960 $ 16,242 $ 44,871
4,061
5,432
(5,921 )
4,680
(8,397 )
(1,708 )
7,703
(2,375 )
3,631
3,031
—
(5,921 )
$ 100,721 $
41
—
6
4,680
3,072
7,709
1,714 $ 75,620 $ (10,005 ) $ 74,164 $ 27,624 $ 19,879 $ 47,943
39
(2,336 )
—
(8,397 )
6
3,637
(36 )
(1,744 )
Dream Industrial REIT 2019 Annual Report | 33
Funds from operations
Q4
Q3
(2,966) $
Q2
84,017 $
2019
Q1
Q4
(8,261) $ 66,455 $
Q3
29,960 $
Q2
16,242 $
2018
Q1
44,871
$ 106,642 $
Net income (loss)
Add (deduct):
Amortization of lease incentives(1)
Interest expense on subsidiary
redeemable units
Fair value adjustments to
investment properties(1)
Fair value adjustments to financial
instruments
Costs on sale of investment
properties(1)
Fair value adjustments of DUIP
included in G&A expenses
Debt settlement costs(1)
5.25% convertible debentures
redemption write-off(2)
Internal leasing costs(1)
Other (transaction cost recovery)
Foreign exchange loss (gain)
Deferred income taxes expense
400
361
388
492
374
364
374
314
3,344
3,344
3,344
3,344
3,344
3,344
3,344
3,344
(89,768)
(6,587)
(61,405)
(20,337)
(38,794)
(8,337)
(17,346)
(43,398)
(4,314)
28,191
(1,505)
48,445
(8,876)
(4,462)
15,615
14,843
557
2,220
419
99
372
—
596
226
2,219
104
964
—
608
—
(69)
75
—
—
747
—
(440)
—
95
—
—
737
—
(138 )
—
26
—
—
820
—
—
—
49
—
1,932
805
(151 )
—
—
49
—
—
885
—
—
—
31
—
—
789
—
—
(recovery)
FFO(3)
FFO per Unit – diluted(3)(4)(5)
FFO payout ratio – diluted(3)
$
$
5,436
25,809 $
0.18 $
97.8%
489
26,659 $
0.19 $
91.6%
1,977
27,617 $
0.20 $
87.1%
574
711
24,951 $ 24,060 $
0.22 $
80.6%
0.21 $
83.7%
(755)
22,749 $
0.21 $
85.0%
962
20,125 $
0.21 $
82.9%
438
21,232
0.22
78.1%
(1) Amortization of lease incentives, fair value adjustments to investment properties, costs on sale of investment properties, debt settlement costs and internal
leasing costs include amounts from continuing and discontinued operations.
(2) On August 2, 2018, the Trust recorded a $1.9 million write-off of unamortized financing costs and mark-to-market adjustments associated with the early
redemption of the 5.25% convertible debentures.
(3) FFO, diluted FFO per Unit and diluted FFO payout ratio are non-GAAP measures. See “Non-GAAP Measures and Other Disclosures” for a description of these
non-GAAP measures.
(4) The LP B Units are included in the calculation of diluted FFO per Unit.
(5) Diluted FFO per Unit excludes $0.6 million of interest expense on convertible debentures for the third quarter of 2018 and $1.8 million for each preceding
quarter in 2018.
NON-GAAP MEASURES AND OTHER DISCLOSURES
The following non-GAAP measures are important measures used by management in evaluating the Trust’s underlying operating
performance and debt management. These non-GAAP measures are not defined by IFRS, do not have a standard meaning and
may not be comparable with similar measures presented by other income trusts.
Funds from operations (“FFO”)
Management believes FFO (including diluted FFO per Unit) is an important measure of our operating performance. This non-
GAAP measurement is a commonly used measure of performance of real estate operations; however, it does not represent net
income nor cash flows generated from (utilized in) operating activities, as defined by IFRS, and is not necessarily indicative of
cash available to fund the Trust’s needs. FFO is not defined by IFRS, does not have a standard meaning and may not be
comparable with similar measures presented by other income trusts.
The Trust’s reported FFO is consistent with the REALPAC definition of FFO, except for the treatment of debt settlement costs
due to disposals of investment properties and the add-back of certain non-cash costs associated with the convertible debenture
redemption in the third quarter of 2018.
Dream Industrial REIT 2019 Annual Report | 34
The debt settlement costs associated with disposals of investment properties are primarily funded from net proceeds from
dispositions and not from cash flows from operating activities. Thus, the Trust is of the view that the debt settlement costs due
to disposals of investment properties should not be included in the determination of the Trust’s FFO. The non-cash costs
associated with the third quarter 2018 convertible debenture redemption represented the accelerated write-off of unamortized
financing costs and mark-to-market adjustments due to the early redemption of the convertible debentures. The Trust is of the
view that such non-cash costs, which were non-recurring in nature, had no impact on the Trust’s ongoing operations and
accordingly should not be included in the determination of the Trust’s FFO.
In compliance with Canadian Securities Administrators Staff Notice 52-306 (Revised), “Non-GAAP Financial Measures”, FFO has
been reconciled to net income in the table below for the three months and years ended December 31, 2019 and December 31,
2018.
Net income for the period
Add (deduct):
Amortization of lease incentives(1)
Interest expense on subsidiary redeemable units
Fair value adjustments to investment properties(1)
Fair value adjustments to financial instruments
Costs on sale of investment properties(1)
Fair value adjustments of DUIP included in G&A expenses
Debt settlement costs(1)
5.25% convertible debentures redemption write-off(2)
Internal leasing costs(1)
Other (transaction cost recovery)
Foreign exchange loss
Deferred income taxes expense
Three months ended December 31,
2018
66,455
2019
106,642 $
$
Year ended December 31,
2018
157,528
2019
179,432 $
$
400
3,344
(89,768 )
(4,314 )
557
99
372
—
596
226
2,219
5,436
25,809 $
374
3,344
(38,794 )
(8,876 )
—
26
—
—
820
—
—
711
24,060
$
1,641
13,376
(178,097 )
70,817
3,196
373
1,336
—
2,688
226
1,572
8,476
105,036 $
1,426
13,376
(107,875 )
17,120
—
155
—
1,932
3,299
(151 )
—
1,356
88,166
FFO for the period
$
(1) Amortization of lease incentives, fair value adjustments to investment properties, costs on sale of investment properties, debt settlement costs and internal
leasing costs include amounts from continuing and discontinued operations.
(2) On August 2, 2018, the Trust recorded a $1.9 million write-off of unamortized financing costs and mark-to-market adjustments associated with the early
redemption of the 5.25% convertible debentures.
Diluted FFO payout ratio
The diluted FFO payout ratio is calculated as the ratio of the distribution rate to diluted FFO per Unit. Management believes it is an
important measure of the Trust’s ability to pay distributions with its funds from operations. However, FFO payout ratio is not defined
by IFRS, does not have a standard meaning and may not be comparable with similar measures presented by other income trusts.
The calculation of diluted FFO payout ratio is included in the table below:
Distribution rate
Diluted FFO per Unit(1)
Diluted FFO payout ratio
Three months ended December 31,
2018
0.17 $
0.22 $
2019
0.17 $
0.18 $
$
$
97.8%
80.6%
Year ended December 31,
2018
0.70
0.86
81.7%
2019
0.70 $
0.78 $
89.6%
(1) Diluted FFO per Unit is a non-GAAP measure. The calculation of diluted FFO per Unit is included under the heading “Funds from operations (“FFO”)” under
the section “Our Results of Operations”. In compliance with Canadian Securities Administrators Staff Notice 52-306 (Revised), “Non-GAAP Financial
Measures”, FFO has been reconciled to net income as included in the consolidated financial statements for the three months and years ended December 31,
2019 and December 31, 2018 in the section above.
Dream Industrial REIT 2019 Annual Report | 35
Weighted average number of Units
The basic weighted average number of Units includes the weighted average of all REIT Units, LP B Units, and vested but unissued
deferred trust units and income deferred trust units.
The diluted weighted average number of Units outstanding used in the FFO per Unit calculation includes the basic weighted
average number of Units, unvested deferred trust units and associated income deferred trust units. As at December 31, 2019,
there were 391,869 unvested deferred trust units and associated income deferred trust units (December 31, 2018 – 449,147).
Prior to the early redemption of the convertible debentures on August 2, 2018, the determination of the diluted weighted
average number of Units included the impact of the assumed conversion of the outstanding convertible debentures into REIT
Units. For the year ended December 31, 2018, the diluted weighted average number of Units included the assumed
conversion of the outstanding convertible debentures into REIT Units totalling 4.7 million REIT Units.
Weighted average Units outstanding
Basic (in thousands)
Diluted (in thousands)
Three months ended December 31,
2018
110,583
111,033
2019
142,785
143,175
Year ended December 31,
2019
2018
133,796
102,643
134,211
107,788
Comparative properties net operating income (“NOI”)
Comparative properties NOI is a non-GAAP measure used by management in evaluating the performance of properties owned
by the Trust in the current and comparative periods presented. This non-GAAP measure is not defined by IFRS, does not have a
standard meaning and may not be comparable with similar measures presented by other income trusts.
When the Trust compares comparative properties NOI on a year-over-year basis and quarter-over-quarter basis, the Trust
excludes investment properties acquired after January 1, 2018 and October 1, 2019, respectively, and assets held for sale or
disposed of prior to or as at the current period. Comparative properties NOI also excludes lease termination fees and other
rental income, straight-line rent, bad debt expenses, and amortization of lease incentives.
Given that the entire Eastern Canada segment was classified as assets held for sale at the end of June 30, 2019 and subsequently
sold on July 31, 2019, the associated results of operations were presented separately as income (loss) from discontinued
operations and excluded from comparative properties NOI in the current and prior periods.
In compliance with Canadian Securities Administrators Staff Notice 52-306 (Revised), “Non-GAAP Financial Measures”,
comparative properties NOI has been reconciled to net rental income under the headings “Comparative properties NOI (year-
over-year comparison)” and “Comparative properties NOI (quarter-over-quarter comparison)”.
Unencumbered assets
Unencumbered assets represent the value of investment properties that have not been pledged as collateral for the financing
of the Trust’s revolving credit facility or mortgages. This non-GAAP measure is used by management in assessing the borrowing
capacity available to the Trust. However, it is not defined by IFRS, does not have a standard meaning and may not be comparable
with similar measures presented by other income trusts.
Prior to June 30, 2019, unencumbered assets included assets held for sale. Effective September 30, 2019, the Trust has chosen
to revise its definition of unencumbered assets to exclude assets held for sale, as management is of the view that such revision
will more accurately assess the borrowing capacity available to the Trust. Accordingly, unencumbered assets for the comparative
periods have been restated to conform to current period presentation.
In compliance with Canadian Securities Administrators Staff Notice 52-306 (Revised), “Non-GAAP Financial Measures”, the table
below reconciles investment properties included in the consolidated financial statements to unencumbered assets as at
December 31, 2019 and December 31, 2018:
Amounts included in consolidated financial statements
Investment properties
Less: Pledged as collateral
Unencumbered assets
December 31, 2019
2,428,664 $
2,332,413
96,251 $
$
$
December 31, 2018
2,138,411
1,947,717
190,694
Dream Industrial REIT 2019 Annual Report | 36
Net asset value (“NAV”) per Unit
NAV per Unit is calculated as the total equity (including LP B Units) divided by the total number of REIT Units and LP B Units.
This non-GAAP measure is an important measure reflecting management’s view of the intrinsic value of the Trust. However,
NAV per Unit is not defined by IFRS, does not have a standard meaning and may not be comparable with similar measures
presented by other income trusts. The calculation of NAV per Unit is included under the heading “Our Equity”.
In compliance with Canadian Securities Administrators Staff Notice 52-306 (Revised), “Non-GAAP Financial Measures”, the table
within the section “Our Equity” under the heading “Total equity” reconciles NAV per Unit to total equity (as per consolidated
financial statements).
Total equity (including LP B Units or subsidiary redeemable units)
One of the components used to determine the Trust’s NAV per Unit is total equity (including LP B Units). Total equity (including
LP B Units) is calculated as the sum of equity per consolidated financial statements and the subsidiary redeemable units.
Management believes it is important to include the subsidiary redeemable units for the purpose of determining the Trust’s
capital management. Management does not consider the subsidiary redeemable units to be debt or borrowings of the Trust,
but rather a component of the Trust’s equity. However, total equity (including LP B Units) is not defined by IFRS, does not have
a standard meaning and may not be comparable with similar measures presented by other income trusts.
In compliance with Canadian Securities Administrators Staff Notice 52-306 (Revised), “Non-GAAP Financial Measures”, the table
within the section “Our Equity” under the heading “Total equity” reconciles total equity (including LP B Units) to total equity (as
per consolidated financial statements).
Total distributions
Total distributions is calculated as the sum of the distributions on REIT Units and interest on subsidiary redeemable units.
Management believes it is important to include interest on subsidiary redeemable units for the purpose of determining the
Trust’s total distributions to all of its unitholders. Management does not consider the interest on subsidiary redeemable units
to be an interest expense of the Trust, but rather a component of the Trust’s total distributions. However, total distributions is
not defined by IFRS, does not have a standard meaning and may not be comparable with similar measures presented by other
income trusts.
In compliance with Canadian Securities Administrators Staff Notice 52-306 (Revised), “Non-GAAP Financial Measures”, the table
below reconciles total distributions to amounts as included in the consolidated financial statements for the three months and
years ended December 31, 2019 and December 31, 2018.
Amounts included in consolidated financial statements
Distributions on REIT Units
Interest on subsidiary redeemable units
Total distributions
Three months ended December 31,
2018
16,193 $
3,344
19,537 $
2019
22,217 $
3,344
25,561 $
$
$
Year ended December 31,
2019
2018
59,851
82,610 $
13,376
13,376
73,227
95,986 $
Distribution Reinvestment and Unit Purchase Plan (“DRIP”) participation rate
The DRIP allows holders of REIT Units or subsidiary redeemable units, other than unitholders who are resident of or present in
the U.S., to elect to have all cash distributions from the Trust reinvested in additional units. Unitholders under the DRIP are
eligible to receive a bonus distribution of Units equal to 3% of the cash distribution reinvested.
The DRIP participation rate is the ratio of total distributions reinvested less bonus distribution over total distributions.
Management believes it is an important measure in evaluating the impact the DRIP will have on the Trust’s ability to sustain
current distribution levels during the current and future periods. Over time, reinvestments pursuant to the DRIP will increase
the number of Units outstanding, which may result in upward pressure on the total amount of cash distributions.
The calculation of the DRIP participation rate has been included under the heading “Distribution policy”. DRIP participation rate
is not defined by IFRS, does not have a standard meaning and may not be comparable with similar measures presented by other
income trusts.
Dream Industrial REIT 2019 Annual Report | 37
In compliance with Canadian Securities Administrators Staff Notice 52-306 (Revised), “Non-GAAP Financial Measures”, total
distributions reinvested and total distributions paid in cash have been reconciled to amounts as included in the consolidated
financial statements for the three months and years ended December 31, 2019 and December 31, 2018.
Distributions reinvested as included in consolidated financial statements $
Less: Distributions reinvested pertaining to prior period
Add: Distributions reinvested on January 15
Less: 3% bonus distribution
Distributions reinvested less 3% bonus distribution
$
Three months ended December 31,
2018
7,874 $
(2,442 )
2,736
(229 )
7,939 $
2019
10,526 $
(3,447 )
3,725
(307 )
10,497 $
Distributions paid in cash as included in consolidated financial statements $
Less: Distributions paid in cash pertaining to prior period
Add: Distributions paid in cash on January 15
Distributions paid in cash
$
Three months ended December 31,
2018
11,615 $
(3,994 )
3,748
11,369 $
2019
14,221 $
(4,731 )
5,267
14,757 $
Year ended December 31,
2019
2018
28,292
38,311 $
(2,736 )
(1,997 )
2,736
3,725
(1,131 )
(824 )
28,207
38,169 $
Year ended December 31,
2019
2018
43,946
55,167 $
(3,748 )
(3,498 )
5,267
3,748
44,196
56,686 $
Available liquidity
Available liquidity is defined as the sum of cash and cash equivalents and undrawn revolving credit facilities at period-end.
Management believes that available liquidity, a non-GAAP measurement, is an important measure in determining our resources
available to meet all of our ongoing obligations. This non-GAAP measure does not have a standard meaning and may not be
comparable with similar measures presented by other income trusts.
In compliance with Canadian Securities Administrators Staff Notice 52-306 (Revised), “Non-GAAP Financial Measures”, the table
below reconciles liquidity to cash and cash equivalents included in the consolidated financial statements as at December 31,
2019 and December 31, 2018:
Amounts per consolidated financial statements
Cash and cash equivalents
Undrawn revolving credit facility
Available liquidity
December 31, 2019
441,537 $
150,000
591,537 $
$
$
December 31, 2018
4,968
98,194
103,162
Level of debt (net debt-to-assets ratio)
Management believes that level of debt (net debt-to-assets ratio) is an important non-GAAP measure in the management of
our debt levels. This non-GAAP measure does not have a standard meaning and may not be comparable with similar measures
presented by other income trusts. Net debt-to-assets ratio as shown below is determined as total debt (including debt related
to assets held for sale) at principal amount outstanding (total debt plus unamortized financing costs, less unamortized fair value
adjustments), less cash and cash equivalents, all divided by total assets (net of cash and cash equivalents).
In compliance with Canadian Securities Administrators Staff Notice 52-306 (Revised), “Non-GAAP Financial Measures”, the
following table calculates the level of debt (net debt-to-assets ratio) as at December 31, 2019 and December 31, 2018:
Amounts per consolidated financial statements
Non-current debt
Current debt
Total debt
Add (deduct):
Unamortized financing costs
Unamortized fair value adjustments
Total debt at principal amount outstanding
Less: Cash and cash equivalents
Net debt
Total assets
Less: Cash and cash equivalents
Total assets (net of cash and cash equivalents)
Net debt-to-assets ratio
$
$
$
December 31, 2019
952,917 $
61,651
1,014,568
8,073
(949 )
1,021,692
(441,537 )
580,155 $
2,892,891
(441,537 )
2,451,354 $
23.7%
December 31, 2018
860,789
76,941
937,730
5,804
(1,641 )
941,893
(4,968 )
936,925
2,160,575
(4,968 )
2,155,607
43.5%
Dream Industrial REIT 2019 Annual Report | 38
Net debt-to-adjusted EBITDAFV
Management believes that net debt-to-adjusted EBITDAFV, a non-GAAP measurement, is an important measure in determining
the time it takes the Trust, on a go forward basis, based on its normalized operating performance, to repay its debt. This non-
GAAP measurement does not have a standard meaning and may not be comparable with similar measures presented by other
income trusts.
Net debt-to-adjusted EBITDAFV as shown below is calculated as total debt (including debt related to assets held for sale) at
principal amount outstanding (total debt plus unamortized financing costs, less unamortized fair value adjustments), less cash
and cash equivalents, all divided by adjusted EBITDAFV – annualized. Adjusted EBITDAFV – annualized is calculated as the
quarterly EBITDAFV plus normalized NOI of properties acquired in the quarter less NOI of properties disposed in the quarter.
EBITDAFV is defined in the section below under the heading “Earnings before interest, taxes, depreciation, amortization and fair
value adjustments (“EBITDAFV”)”.
In compliance with Canadian Securities Administrators Staff Notice 52-306 (Revised), “Non-GAAP Financial Measures”, the
following table calculates the annualized net debt-to-adjusted EBITDAFV as at December 31, 2019 and December 31, 2018:
Amounts included in consolidated financial statements
Non-current debt
Current debt
Total debt
Add (deduct):
Unamortized financing costs
Unamortized fair value adjustments
Total debt at principal amount outstanding
Less: Cash and cash equivalents
Net debt
EBITDAFV(1) – quarterly
Add:
December 31, 2019
$
952,917 $
61,651
1,014,568
December 31, 2018
860,789
76,941
937,730
8,073
(949 )
1,021,692
(441,537 )
580,155 $
33,796
$
5,804
(1,641 )
941,893
(4,968 )
936,925
32,624
Normalized NOI of properties acquired in the quarter(2)
NOI of properties disposed in the quarter
49
—
32,673
Adjusted EBITDAFV – quarterly
130,692
Adjusted EBITDAFV – annualized
7.2
Net debt-to-adjusted EBITDAFV (years)
(1) EBITDAFV for the three months ended December 31, 2019 and December 31, 2018 (non-GAAP measure) have been reconciled to net income for the
respective periods in the section below, under the heading “Earnings before interest, taxes, depreciation, amortization and fair value adjustments
(“EBITDAFV”)”.
176
34
34,006
136,024 $
4.3
$
(2) Represents the incremental NOI had the acquisitions in the respective periods occurred for the full quarter, determined using the average daily NOI times
the number of days the Trust did not own the properties.
Interest coverage ratio
Management believes that interest coverage ratio, a non-GAAP measurement, is an important measure in determining our
ability to cover interest expense on debt based on our operating performance. The interest coverage ratio includes the results
of continuing and discontinued operations. This non-GAAP measurement does not have a standard meaning and may not be
comparable with similar measures presented by other income trusts.
Prior to December 31, 2018, interest coverage ratio was determined as net rental income plus interest and fee income, less
general and administrative expenses, plus deferred unit compensation expense, all divided by interest expense on total debt
excluding amortization of financing costs and fair value adjustments. Interest expense on subsidiary redeemable units was
excluded from this ratio as it represents distributions on units; however, pursuant to IFRS, the distributions are presented as
interest expense.
Effective January 1, 2019, the Trust has chosen to revise its calculation of interest coverage ratio to be calculated as the trailing
12-month EBITDAFV divided by the trailing 12-month interest expense on debt. Interest expense on subsidiary redeemable units
continues to be excluded from this ratio. Management is of the view that such revision will more accurately reflect the ability
of the Trust to meet its trailing 12-month interest expense on debt obligations. Accordingly, the interest coverage ratios for
comparative periods have been restated to conform to current period presentation.
Dream Industrial REIT 2019 Annual Report | 39
In compliance with Canadian Securities Administrators Staff Notice 52-306 (Revised), “Non-GAAP Financial Measures”, the
following table calculates the interest coverage ratio for the years ended December 31, 2019 and December 31, 2018.
Year ended December 31,
2018
123,865
EBITDAFV(1)
37,070
Interest expense on debt (2)
3.3
Interest coverage ratio (times)
(1) EBITDAFV for the years ended December 31, 2019 and December 31, 2018 (non-GAAP measure) have been reconciled to net income in the section below,
2019
139,217 $
36,173
3.8
$
under the heading “Earnings before interest, taxes, depreciation, amortization and fair value adjustments (“EBITDAFV”)”.
(2) Includes interest expense on debt from continuing and discontinued operations.
Earnings before interest, taxes, depreciation, amortization and fair value adjustments (“EBITDAFV”)
EBITDAFV is defined by the Trust as net income for the period adjusted for fair value adjustments to investment properties and
financial instruments, net losses on transactions and other activities, interest expense, depreciation and amortization, other
items included in investment properties revenues, and net current and deferred income taxes expense. The adjustments include
activity from continuing and discontinued operations. This non-GAAP measurement is an important measure used by the Trust
in evaluating property operating performance; however, it is not defined by IFRS, does not have a standard meaning and may
not be comparable with similar measures presented by other income trusts.
In compliance with Canadian Securities Administrators Staff Notice 52-306 (Revised), “Non-GAAP Financial Measures”, EBITDAFV
has been reconciled to net income in the table below for the three months and years ended December 31, 2019 and
December 31, 2018:
Net income for the period
Add (deduct):
Fair value adjustments to investment properties(1)
Fair value adjustments to financial instruments
Net losses on transactions and other activities(1)
Interest expense – debt(1)
Interest expense – subsidiary redeemable units
Depreciation and amortization
Other items included in investment properties
revenues(2)
Current and deferred income taxes expense, net(1)
EBITDAFV for the period
$
Three months ended December 31,
2019
106,642 $
2018
66,455 $
$
Year ended December 31,
2018
157,528
2019
179,432 $
(89,768 )
(4,314 )
3,970
8,686
3,344
20
(38,794 )
(8,876 )
820
8,769
3,344
9
(178,097 )
70,817
9,018
36,173
13,376
55
(188 )
5,404
33,796 $
154
743
32,624 $
(15 )
8,458
139,217
$
(107,875 )
17,120
5,080
37,070
13,376
59
271
1,236
123,865
(1) Fair value adjustments to investment properties, net losses on transactions and other activities, interest expense – debt, and current and deferred income
taxes expense, net, include continuing and discontinued operations.
(2) Includes lease termination fees and other items, straight-line rent and amortization of lease incentives from continuing and discontinued operations.
Dream Industrial REIT 2019 Annual Report | 40
SECTION V
DISCLOSURE CONTROLS AND OUR PROCEDURES AND INTERNAL CONTROL OVER FINANCIAL REPORTING
For the year ended December 31, 2019, the Chief Executive Officer and the Chief Financial Officer (the “Certifying Officers”),
together with other members of management, have evaluated the design and operational effectiveness of Dream Industrial
REIT’s disclosure controls and procedures, as defined in National Instrument 52-109 – Certification of Disclosure in Issuers’
Annual and Interim Filings (“NI 52-109”). The Certifying Officers have concluded that the disclosure controls and procedures are
adequate and effective in order to provide reasonable assurance that material information has been accumulated and
communicated to management to allow timely decisions of required disclosures by Dream Industrial REIT and its consolidated
subsidiary entities within the required time periods.
Dream Industrial REIT’s internal control over financial reporting (as defined in NI 52-109) is designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of the consolidated financial statements for external
purposes in accordance with IFRS. Using the framework established in “2013 Committee of Sponsoring Organizations (COSO)
Internal Control Framework”, published by the Committee of Sponsoring Organizations of the Treadway Commission, the
Certifying Officers, together with other members of management, have evaluated the design and operation of Dream Industrial
REIT’s internal control over financial reporting. Based on that evaluation, the Certifying Officers have concluded that Dream
Industrial REIT’s internal control over financial reporting was effective as at December 31, 2019.
There were no changes in Dream Industrial REIT’s internal control over financial reporting during the financial year ended
December 31, 2019 that have materially affected, or are reasonably likely to materially affect, Dream Industrial REIT’s internal
control over financial reporting.
Dream Industrial REIT 2019 Annual Report | 41
SECTION VI
RISKS AND OUR STRATEGY TO MANAGE
In addition to the specific risks discussed in this MD&A, we are exposed to various risks and uncertainties, many of which are
beyond our control and could have an impact on our business, financial condition, operating results and prospects. Unitholders
should consider these risks and uncertainties when assessing our outlook in terms of investment potential. For a further
discussion of the risks and uncertainties identified by Dream Industrial REIT, please refer to our latest Annual Report and Annual
Information Form filed on SEDAR at www.sedar.com.
Real estate ownership
Real estate ownership is generally subject to numerous factors and risks, including changes in general economic conditions (such
as the availability, terms and cost of mortgage financings and other types of credit), local economic conditions (such as an
oversupply of industrial properties or a reduction in demand for real estate in the area), the attractiveness of properties to
potential tenants or purchasers, competition with other landlords with similar available space, and the ability of the owner to
provide adequate maintenance at competitive costs.
An investment in real estate is relatively illiquid. Such illiquidity will tend to limit our ability to vary our portfolio promptly in
response to changing economic or investment conditions. In recessionary times, it may be difficult to dispose of certain types
of real estate. The costs of holding real estate are considerable, and during an economic recession we may be faced with ongoing
expenditures with a declining prospect of incoming receipts. In such circumstances, it may be necessary for us to dispose of
properties at lower prices in order to generate sufficient cash from operations and to make distributions and interest payments.
Certain significant expenditures (e.g., property taxes, maintenance costs, mortgage payments, insurance costs and related
charges) must be made throughout the period of ownership of real property, regardless of whether the property is producing
sufficient income to pay such expenses. In order to retain desirable rentable space and to generate adequate revenue over the
long term, we must maintain or, in some cases, improve each property’s condition to meet market demand. Maintaining a rental
property in accordance with market standards can entail significant costs, which we may not be able to pass on to our tenants.
Numerous factors, including the age of the relevant building structure, the material and substances used at the time of
construction, or currently unknown building code violations, could result in substantial unbudgeted costs for refurbishment or
modernization. In the course of acquiring a property, undisclosed defects in design or construction or other risks might not have
been recognized or correctly evaluated during the pre-acquisition due diligence process. These circumstances could lead to
additional costs and could have an adverse effect on our proceeds from sales and rental income of the relevant properties.
Rollover of leases
Upon the expiry of any lease, there can be no assurance that the lease will be renewed or the tenant replaced. Furthermore,
the terms of any subsequent lease may be less favourable than those of the existing lease. Our cash flows and financial position
would be adversely affected if our tenants were to become unable to meet their obligations under their leases or if a significant
amount of available space in our properties could not be leased on economically favourable lease terms. In the event of default
by a tenant, we may experience delays or limitations in enforcing our rights as lessor and incur substantial costs in protecting
our investment. Furthermore, at any time, a tenant may seek the protection of bankruptcy, insolvency or similar laws, which
could result in the rejection and termination of the lease of the tenant and, thereby, cause a reduction in the cash flows available
to us.
Concentration of properties and tenants
Currently, our properties are located in Canada and the U.S., and, as a result, are impacted by economic and other factors
specifically affecting the real estate markets in Canada and the U.S. These factors may differ from those affecting the real estate
markets in other regions. Due to the concentrated nature of our properties, a number of our properties could experience any
of the same conditions at the same time. If real estate conditions in Canada or the U.S. decline relative to real estate conditions
in other regions, our cash flows and financial condition may be more adversely affected than those of companies that have more
geographically diversified portfolios of properties.
Dream Industrial REIT 2019 Annual Report | 42
Financing
We require access to capital to maintain our properties as well as to fund our growth strategy and significant capital
expenditures. There is no assurance that capital will be available when needed or on favourable terms. Our access to third-party
financing will be subject to a number of factors, including general market conditions; the market’s perception of our growth
potential; our current and expected future earnings; our cash flow and cash distributions and cash interest payments; and the
market price of our REIT Units.
A significant portion of our financing is debt. Accordingly, we are subject to the risks associated with debt financing, including
the risk that our cash flows will be insufficient to meet required payments of principal and interest, and that, on maturities of
such debt, we may not be able to refinance the outstanding principal under such debt or that the terms of such refinancing will
be more onerous than those of the existing debt. If we are unable to refinance debt at maturity on terms acceptable to us or at
all, we may be forced to dispose of one or more of our properties on disadvantageous terms, which may result in losses and
could alter our debt-to-equity ratio or be dilutive to unitholders. Such losses could have a material adverse effect on our financial
position or cash flows.
The degree to which we are leveraged could have important consequences to our operations. A high level of debt will: reduce
the amount of funds available for the payment of distributions to unitholders and interest payments on our debentures; limit
our flexibility in planning for and reacting to changes in the economy and in the industry, and increase our vulnerability to
general adverse economic and industry conditions; limit our ability to borrow additional funds, dispose of assets, encumber our
assets and make potential investments; place us at a competitive disadvantage compared to other owners of similar real estate
assets that are less leveraged and, therefore, may be able to take advantage of opportunities that our indebtedness would
prevent us from pursuing; make it more likely that a reduction in our borrowing base following a periodic valuation (or
redetermination) could require us to repay a portion of then outstanding borrowings; and impair our ability to obtain additional
financing in the future for working capital, capital expenditures, acquisitions, general trust or other purposes.
Interest rates
When entering into financing agreements or extending such agreements, we depend on our ability to agree on terms for interest
payments that will not impair our desired profit, and on amortization schedules that do not restrict our ability to pay
distributions on our REIT Units and interest payments on our debentures. In addition to existing variable rate portions of our
financing agreements, we may enter into future financing agreements with variable interest rates. An increase in interest rates
could result in a significant increase in the amount we pay to service debt, which could limit our ability to pay distributions to
unitholders and could impact the market price of the REIT Units. Increases in interest rates generally cause a decrease in demand
for properties. Higher interest rates and more stringent borrowing requirements, whether mandated by law or required by
banks, could have a significant negative effect on our ability to sell any of our properties.
Currency risk
Some of our investments and operations are conducted in U.S. dollars; however, we pay distributions to unitholders in Canadian
dollars. As a result, fluctuations in the U.S. dollar against the Canadian dollar could have a material adverse effect on our financial
results, which are denominated and reported in Canadian dollars, and on our ability to pay cash distributions to unitholders.
The Trust’s exposure to currency exchange risk could increase if the proportion of income from properties located in the U.S.
increases as a result of future property acquisitions.
Changes in law
We are subject to applicable federal, provincial or state, municipal, local and common laws and regulations governing the
ownership and leasing of real property, employment standards, environmental matters, taxes and other matters. It is possible
that future changes in such laws or regulations, or changes in their application, enforcement or regulatory interpretation, could
result in changes in the legal requirements affecting us (including with retroactive effect). In addition, the political conditions in
the jurisdictions in which we operate are also subject to change. Any changes in investment policies or shifts in political attitudes
may adversely affect our investments. Any changes in the laws to which we are subject in the jurisdictions in which we operate
could materially affect our rights and title in and to the properties and the revenues we are able to generate from our
investments.
Dream Industrial REIT 2019 Annual Report | 43
Tax considerations
We intend to continue to qualify as a “unit trust” and a “mutual fund trust” for purposes of the Income Tax Act (Canada). There
can be no assurance that Canadian federal income tax laws and the administrative policies and assessing practices of the Canada
Revenue Agency respecting the treatment of mutual fund trusts will not be changed in a manner that adversely affects the
unitholders. If we cease to qualify as a “mutual fund trust” under the Income Tax Act (Canada), the income tax considerations
applicable to us would be materially and adversely different in certain respects, including that the REIT Units may cease to be
qualified investments for registered plans under the Income Tax Act (Canada).
Although we have been structured with the objective of maximizing after-tax distributions, tax charges and withholding taxes in
various jurisdictions in which we invest will affect the level of distributions made to us by our subsidiaries. No assurance can be
given as to the level of taxation suffered by us or our subsidiaries. As at December 31, 2019, our revenues are derived from our
investments located in Canada and the U.S., which will subject us to legal and political risks specific to those countries, any of
which could adversely impact our investments, cash flows, operating results or financial condition, our ability to make
distributions on the REIT Units and our ability to implement our growth strategy. The taxable income portion of our distributions
is affected by a variety of factors, including the amount of foreign accrual property income that we recognize annually, gains and
losses, if any, from the disposition of properties and the results of our operations. These components will change each year, and
therefore, the taxable income allocated to our unitholders each year will also change accordingly.
Competition
The real estate markets in Canada and the U.S. are highly competitive and fragmented, and we compete for real property
acquisitions with individuals, corporations, institutions and other entities that may seek real property investments similar to
those we desire. An increase in the availability of investment funds or an increase in interest in real property investments may
increase competition for real property investments, thereby increasing purchase prices and reducing the yield on them. If
competing properties of a similar type are built in the area where one of our properties is located or if similar properties located
in the vicinity of one of our properties are substantially refurbished, the net operating income derived from and the value of
such property could be reduced.
Numerous other developers, managers and owners of properties will compete with us in seeking tenants. To the extent that our
competitors own properties that are in better locations, of better quality or less leveraged than the properties owned by us, they
may be in a better position to attract tenants who might otherwise lease space in our properties. To the extent that our competitors
are better capitalized or financially stronger, they would be in a better position to withstand an economic downturn. The existence
of competition for tenants could have an adverse effect on our ability to lease space in our properties and on the rents charged or
concessions granted, and could materially and adversely affect our cash flows, operating results and financial condition.
Joint arrangements
We are a participant in joint arrangements with related parties. A joint arrangement involves certain additional risks, including:
(i)
the possibility that such third parties may at any time have economic or business interests or goals that will be inconsistent
with ours, or take actions contrary to our instructions or requests or to our policies or objectives with respect to our real
estate investments;
(ii) the risk that such third parties could experience financial difficulties or seek the protection of bankruptcy, insolvency or
other laws, which could result in additional financial demands on us to maintain and operate such properties or repay the
third parties’ share of property debt guaranteed by us or for which we will be liable, and/or result in our suffering or
incurring delays, expenses and other problems associated with obtaining court approval of the joint arrangement;
(iii) the risk that such third parties may, through their activities on behalf of or in the name of the joint arrangements, expose
or subject us to liability; and
(iv) the need to obtain third parties’ consents with respect to certain major decisions, including the decision to distribute cash
generated from such properties or to refinance or sell a property. In addition, the sale or transfer of interests in certain of
the joint arrangements may be subject to rights of first refusal or first offer, and certain of the joint venture and partnership
agreements may provide for buy-sell or similar arrangements. Such rights may be triggered at a time when we may not
desire to sell but may be forced to do so because we do not have the cash to purchase the other party’s interests. Such
rights may also inhibit our ability to sell an interest in a property or a joint arrangement within the time frame or otherwise
on the basis we desire.
Our investment in properties through joint arrangements is subject to the investment guidelines set out in our Declaration
of Trust.
Dream Industrial REIT 2019 Annual Report | 44
Environmental and climate change risk
As an owner of real property, we are subject to various federal, provincial or state, and municipal laws relating to environmental
matters. Such laws provide a range of potential liability, including potentially significant penalties, and potential liability for the
costs of removal or remediation of certain hazardous substances. The presence of such substances, if any, could adversely affect
our ability to sell or redevelop such real estate or to borrow using such real estate as collateral and, potentially, could also result
in civil claims against us. In order to obtain financing for the purchase of a new property through traditional channels, we may
be requested to arrange for an environmental audit to be conducted. Although such an audit provides us and our lenders with
some assurance, we may become subject to liability for undetected pollution or other environmental hazards on our properties
against which we cannot insure, or against which we may elect not to insure where premium costs are disproportionate to our
perception of relative risk.
We have formal policies and procedures to review and monitor environmental exposure. These policies include the requirement
to obtain a Phase I Environmental Site Assessment, conducted by an independent and qualified environmental consultant,
before acquiring any real property or any interest therein.
Climate change continues to attract the focus of governments and the general public as an important threat, given the emission
of greenhouse gases and other activities continue to negatively impact the planet. We face the risk that our properties will be
subject to government initiatives aimed at countering climate change, such as reduction of greenhouse gas emissions, which
could impose constraints on our operational flexibility or cause us to incur financial costs to comply with various reforms. Any
failure to adhere and adapt to climate change reform could result in fines or adversely affect our reputation, operations or
financial performance. Furthermore, our properties may be exposed to the impact of events caused by climate change, such as
natural disasters and increasingly frequent and severe weather conditions. Such events could interrupt our operations and
activities, damage our properties and potentially decrease our property values or require us to incur additional expenses
including an increase in insurance costs to insure our properties against natural disasters and severe weather.
Insurance
We carry general liability, umbrella liability and excess liability insurance with limits that are typically obtained for similar real estate
portfolios in Canada and the U.S. and otherwise acceptable to our trustees. For the property risks, we carry “All Risks” property
insurance including, but not limited to, flood, earthquake and loss of rental income insurance (with at least a 24-month indemnity
period). We also carry boiler and machinery insurance covering all boilers, pressure vessels, HVAC systems and equipment
breakdown. However, certain types of risks (generally of a catastrophic nature such as from war or nuclear accident) are uninsurable
under any insurance policy. Furthermore, there are other risks that are not economically viable to insure at this time. We partially
self-insure against terrorism risk for our entire portfolio. We have insurance for earthquake risks, subject to certain policy limits,
deductibles and self-insurance arrangements. Should an uninsured or underinsured loss occur, we could lose our investment in,
and anticipated profits and cash flows from, one or more of our properties, but we would continue to be obligated to repay any
recourse mortgage indebtedness on such properties. We do not carry title insurance on all of our properties. If a loss occurs
resulting from a title defect with respect to a property where there is no title insurance or the loss is in excess of insured limits, we
could lose all or part of our investment in, and anticipated profits and cash flows from, such property.
Cyber security risks
As we continue to increase our dependence on information technologies to conduct our operations, the risks associated with
cyber security also increase. We rely on management information systems and computer control systems. Business disruptions,
utility outages and information technology system and network disruptions due to cyber-attacks could seriously harm our
operations and materially adversely affect our operating results. Cyber security risks include attacks on information technology
and infrastructure by hackers, damage or loss of information due to viruses, the unintended disclosure of confidential
information, the misuse or loss of control over computer control systems, and breaches due to employee error. Our exposure
to cyber security risks includes exposure through third parties on whose systems we place significant reliance for the conduct
of our business. We have implemented security procedures and measures in order to protect our systems and information from
being vulnerable to cyber-attacks. However, we may not have the resources or technical sophistication to anticipate, prevent or
recover from rapidly evolving types of cyber-attacks. Compromises to our information and control systems could have severe
financial and other business implications.
Dream Industrial REIT 2019 Annual Report | 45
SECTION VII
CRITICAL ACCOUNTING JUDGMENTS
Preparing the consolidated financial statements requires management to make judgments, estimates and assumptions that affect
the amounts reported. Management bases its judgments and estimates on historical experience and other factors it believes to be
reasonable under the circumstances, but which are inherently uncertain and unpredictable, the result of which forms the basis of
the carrying amounts of assets and liabilities. However, uncertainty about these assumptions and estimates could result in
outcomes that could require a material adjustment in the future to the carrying amount of the asset or liability affected.
The following are the critical judgments used in applying the Trust’s accounting policies that have the most significant effect on
the amounts in the consolidated financial statements:
Investment properties
Critical judgments are made in respect of the fair values of investment properties. The fair values of investment properties are
reviewed at least quarterly by management with reference to independent property appraisals and market conditions existing
at the reporting date, using generally accepted market practices. The independent appraisers are experienced, nationally
recognized and qualified in the professional valuation of investment properties in their respective geographic areas. Judgment
is also applied in determining the extent and frequency of obtaining independent appraisals. At each reporting period, a select
number of properties, determined on a rotational basis, are valued by independent appraisers. For properties not subject to
independent appraisals, valuations are prepared internally during each reporting period.
Critical assumptions used in estimating the fair values of investment properties include cap rates, discount rates that reflect
current market uncertainties, terminal cap rates and market rents. Other key assumptions relating to the estimates of fair values
of investment properties include components of stabilized NOI, leasing costs and vacancy rates. The Trust examines the critical
and key assumptions at the end of each reporting period and updates these assumptions based on recent leasing activity and
external market data available at that time. If there is any change in these assumptions or in regional, national or international
economic conditions, the fair value of investment properties may change materially.
The Trust makes judgments with respect to whether lease incentives provided in connection with a lease enhance the value of
the leased space, which determines whether or not such amounts are treated as tenant improvements and added to investment
properties. Lease incentives, such as cash, rent-free periods and lessee or lessor owned improvements, may be provided to
lessees to enter into an operating lease. Lease incentives that do not provide benefits beyond the initial lease term are included
in the carrying amount of investment properties and are amortized as a reduction of rental revenue on a straight-line basis over
the term of the lease.
Judgment is also applied in determining whether certain costs are additions to the carrying amount of the investment property.
Business combinations
Accounting for business combinations under IFRS 3, “Business Combinations” (“IFRS 3”), only applies if it is considered that a
business has been acquired. Under IFRS 3, a business is defined as an integrated set of activities and assets conducted and
managed for the purpose of providing a return to investors or lower costs or other economic benefits directly and
proportionately to the Trust. A business generally consists of inputs, processes applied to those inputs, and resulting outputs
that are, or will be, used to generate revenues. In the absence of such criteria, a group of assets is deemed to have been acquired.
If goodwill is present in a transferred set of activities and assets, the transferred set is presumed to be a business. Judgment is
used by management in determining whether the acquisition of an investment property or a portfolio of investment properties
qualifies as a business combination in accordance with IFRS 3 or as an asset acquisition.
When determining whether the acquisition of an investment property or a portfolio of investment properties is a business
combination or an asset acquisition, the Trust applies judgment when considering the following:
• Whether the investment property or properties are capable of producing outputs;
• Whether the market participant could produce outputs if missing elements exist.
In particular, the Trust considers the following:
• Whether employees were assumed in the acquisition;
• Whether an operating platform has been acquired.
The Trust classifies an acquisition as an asset acquisition when it acquires a property or a portfolio of properties, and does not
assume employees or does not acquire an operating platform.
Dream Industrial REIT 2019 Annual Report | 46
Impairment
The Trust assesses the possibility and amount of any impairment loss or write-down as it relates to the equity accounted
investment, amounts receivable, and property and equipment.
IFRS 9, “Financial Instruments” (“IFRS 9”), requires management to use judgment in determining whether the Trust’s financial
assets are impaired. In making this judgment, the Trust evaluates, among other factors, the credit risk of the counterparty, and
whether there are indicators that credit risk on a financial instrument has changed significantly since initial recognition or the
last reassessment of credit risk. Where the credit risk of a financial asset has increased significantly since initial recognition, the
Trust records a loss allowance equal to the lifetime expected credit losses arising from that financial asset.
IAS 36, “Impairment of Assets” (“IAS 36”), requires management to use judgment in determining the recoverable amount of
assets and equity accounted investments that are tested for impairment. Judgment is also involved in estimating the value-in-
use of the equity accounted investments, including estimates of future cash flows, discount rates and terminal rates. The values
assigned to these key assumptions reflect past experience and are consistent with external sources of information.
CHANGES IN ACCOUNTING POLICIES AND DISCLOSURES
The Trust has adopted the following new and revised standards, along with any consequential amendments, effective January 1,
2019. These changes were made in accordance with the applicable transitional provisions as described below.
Leases
Effective January 1, 2019, the Trust has applied IFRS 16, “Leases” (“IFRS 16”). IFRS 16 sets out the principles for the recognition,
measurement and disclosure of leases. While accounting for leases where the Trust is acting as the lessor is substantially
unchanged, there have been significant changes to the accounting for leases previously classified as operating leases where the
Trust is acting as the lessee.
The Trust has applied IFRS 16 on a modified retrospective basis. The accounting policies applied under the new standard are
disclosed in Note 2 of the consolidated financial statements.
As a result of adopting IFRS 16, no right-of-use assets or lease liabilities were recognized on transition. The Trust is not required
to make any adjustments on transition for leases in which it acts as a lessor.
Income taxes
On January 1, 2019, the Trust adopted International Financial Reporting Interpretations Committee (“IFRIC”) 23, “Uncertainty over
Income Tax Treatments” (“IFRIC 23”), which has clarified the application of the recognition and measurement requirements in
IAS 12, “Income Taxes” (“IAS 12”), for situations where there is uncertainty over income tax treatments. IFRIC 23 specifically
addresses whether an entity considers income tax treatments separately; assumptions that an entity makes regarding the
examination of tax treatments by taxation authorities; how an entity determines taxable income or loss, tax bases, unused tax
losses or credits and tax rates; and how an entity considers changes in facts and circumstances. IFRIC 23 does not apply to taxes or
levies outside the scope of IAS 12. IFRIC 23 did not have a material impact on the Trust’s consolidated financial statements.
FUTURE ACCOUNTING POLICY CHANGES
Business combinations
The International Accounting Standards Board published an amendment to the requirements of IFRS 3, “Business Combinations”
(“IFRS 3”), in relation to whether a transaction meets the definition of a business combination. The amendment clarifies the definition
of a business and provides additional illustrative examples, including those relevant to the real estate industry. A significant change in
the amendment is the option for an entity to assess whether substantially all of the fair value of the gross assets acquired is
concentrated in a single asset or group of similar assets. If such a concentration exists, the transaction is not viewed as an acquisition
of a business and no further assessment of the business combination guidance is required. This will be relevant where the value of the
acquired entity is concentrated in one property, or a group of similar properties. The amendment is effective for periods beginning on
or after January 1, 2020, with earlier application permitted. There will be no impact on transition since the amendments are effective
for business combinations for which the acquisition date is on or after the transition date.
Additional information
Additional information relating to Dream Industrial REIT, including the latest Annual Information Form of Dream Industrial REIT,
is available on SEDAR at www.sedar.com.
Dream Industrial REIT 2019 Annual Report | 47
SECTION VIII – PROPERTY LISTING
The table in this section includes supplementary information on our portfolio as at December 31, 2019.
Property
7140 40th Street SE, Calgary
1919 84th Avenue (Park 19), Edmonton
1802 Stock Road, Regina
2721 Hopewell Place NE, Calgary
204 26229 Township Road 531A (Parkland County),
Edmonton
6908 6th Street SE (Glenmore Business Park), Calgary
3917 81st Avenue, Edmonton
2876 Sunridge Way NE (Sunridge Business Park), Calgary
3250 Sunridge Way NE (Sunridge Business Park), Calgary
2240 Premier Way (GE Turbine), Edmonton
345 and 363 Maxwell Crescent, Regina
7121 6th Street SE (Glenmore Business Park), Calgary
120 Pond Street East, Brooks
1105 Pettigrew Avenue, Regina
1640 Broder Street, Regina
Western Canada Single-tenant
310 Henderson Drive, Regina
7803 35th Street SE, Calgary
15303 128th Avenue, Edmonton
611–615 71st Avenue SE & 7515 6th Street SE
(Glenmore Business Park), Calgary
628–668 Henderson Drive (Chestermere), Regina
7504 30th Street SE, Calgary
11445 163rd Street (Alberta Park), Edmonton
9603–9699 45th Avenue NW, Edmonton
603 Park Street, Regina
3916 61st Avenue, Calgary
7004–7042 30th Street SE, Calgary
651 Henderson Drive (Henderson Business Centre), Regina
26229 Township Road 531, Parkland County
7008 5th Street SE (Glenmore Business Park), Calgary
11404 Winterburn Rd NW, Edmonton
7004 5th Street SE (Glenmore Business Park), Calgary
9451 45th Avenue (Southwood Centre), Edmonton
4710–4760 14th Street NE (McCall Industrial Park), Calgary
2777 23rd Avenue NE (Sunridge Business Park), Calgary
3510 29th Street NE (ACC Centre), Calgary
7111 6th Street SE (Glenmore Business Park), Calgary
3401 19th Street, Calgary
2150 29th Street NE (Sunridge Business Park), Calgary
7710 5th Street SE (Glenmore Business Park), Calgary
550 71st Avenue SE (Glenmore Business Park), Calgary
2175 29th Street NE (Sunridge Business Park), Calgary
2256 29th Street NE (Sunridge Business Park), Calgary
4403–4435 97th Street NW, Edmonton
1139–1165 40th Avenue NE, Calgary
2151 32nd Street NE (Sunridge Business Park), Calgary
501–529 36th Avenue SE, Calgary
2928 Sunridge Way NE (Sunridge Business Park), Calgary
4504–4576 14th Street NE, Calgary
6812 6th Street SE (Glenmore Business Park), Calgary
2121 29th Street NE (Sunridge Business Park), Calgary
402 McDonald Street (Imperial Business Centre), Regina
2985 23rd Avenue NE (Sunridge Business Park), Calgary
4402–4434 10th Street NE, Calgary
Owned share of
total GLA in
thousands of
square feet
352
49
46
38
35
31
30
30
27
26
23
19
14
12
11
743
376
189
177
168
164
139
131
111
110
100
94
90
89
86
81
79
75
73
67
65
65
64
60
59
59
58
58
58
57
57
57
57
57
57
57
56
54
54
Clear ceiling height
(warehouse
component) in feet
Owned share of
site area in acres
Number
of tenants
Weighted average
remaining lease
term in years
In-place and
committed
occupancy
30.0
21.0
28.0
22.0
24.0
18.0
28.0
16.0
24.0
30.0
24.0
20.0
24.0
18.0
16.0
26.3
24.0
20.0
25.0
20.0
19.0
22.0
22.0
22.0
19.0
26.0
18.0
19.0
24.7
17.0
23.8
20.0
28.0
18.0
24.0
24.0
20.0
22.0
24.0
20.0
12.0
24.0
24.0
24.0
20.0
24.0
18.0
24.0
16.0
20.0
24.0
18.0
24.0
16.0
13.8
3.7
3.6
1.9
9.0
3.2
5.5
2.3
2.1
1.5
3.4
0.9
5.2
2.1
1.1
59.3
24.0
10.2
12.4
6.5
9.1
6.0
5.2
6.0
6.8
5.1
5.3
5.0
6.5
3.7
6.3
3.4
4.5
4.0
3.8
3.0
2.9
4.1
3.3
2.3
2.6
3.5
3.5
3.2
2.9
3.4
2.9
4.1
4.1
5.7
3.8
2.8
3.0
3.1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
15
2
6
3
16
18
2
8
26
19
2
9
15
12
6
14
11
1
21
2
8
4
6
7
26
7
3
4
5
6
5
6
3
32
6
3
12
4
7
9.8
4.5
3.4
2.8
0.2
4.8
1.3
0.9
0.6
2.6
1.2
1.9
1.8
3.3
4.1
5.9
3.8
3.1
4.1
3.5
1.8
2.7
2.3
1.9
3.9
1.8
5.1
2.0
2.4
3.0
2.8
2.4
3.1
2.3
5.9
3.2
2.4
2.6
3.0
3.3
2.3
4.3
4.8
2.9
4.9
3.6
3.3
5.0
2.2
3.7
6.6
2.4
4.8
2.2
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
97.3%
85.1%
100.0%
79.6%
99.2%
87.2%
100.0%
100.0%
87.6%
97.6%
86.4%
95.2%
100.0%
34.3%
95.9%
100.0%
88.5%
100.0%
100.0%
100.0%
86.7%
97.4%
100.0%
100.0%
100.0%
100.0%
83.0%
50.2%
100.0%
100.0%
100.0%
100.0%
57.9%
100.0%
93.3%
Dream Industrial REIT 2019 Annual Report | 48
Property
7003 5th Street SE (Glenmore Business Park), Calgary
16134 114th Avenue NW, Edmonton
2886 Sunridge Way NE (Sunridge Business Park), Calgary
610 70th Avenue SE (Glenmore Business Park), Calgary
1512–1514 8th Street, Edmonton
535–561 36th Avenue SE, Calgary
5824 Burbank Road SE, Calgary
310 Hoffer Drive (McDonald Business Centre), Regina
4001 19th Street, Calgary
6810 6th Street SE (Glenmore Business Park), Calgary
6804–6818 30th Street SE, Calgary
7131 6th Street SE (Glenmore Business Park), Calgary
6023–6039 Centre Street South, Calgary
4502–4516 10th Street NE, Calgary
16104 114th Avenue NW, Edmonton
3030 Sunridge Way NE (Sunridge Business Park), Calgary
6043–6055 Centre Street South, Calgary
530–544 38A Avenue SE, Calgary
7007 5th Street SE (Glenmore Business Park), Calgary
616 71st Avenue SE (Glenmore Business Park), Calgary
1135–1149 45th Avenue NE, Calgary
6910 6th Street SE (Glenmore Business Park), Calgary
4620–4640 11th Street NE, Calgary
102–114 61st Avenue SW, Calgary
4001–4019 23rd Street NE, Calgary
2915–2925 58th Avenue SE, Calgary
125 McDonald Street, Regina
3503–3521 62nd Avenue SE, Calgary
Western Canada Multi-tenant
Western Canada
275 Wellington Street East, Aurora
45 Progress Avenue, Toronto
3230 Mainway Drive, Burlington
290 Humberline Drive, Etobicoke
750 Creditstone Road, Vaughan
121 Pippin Road, Vaughan
580 Industrial Road, London
441 Chrislea Road, Vaughan
2130 South Service Road West, Oakville
300 Orenda Road, Brampton
970 Fraser Drive, Burlington
3 & 5 Blair Drive, Brampton
274 Humberline Drive, Etobicoke
2226 South Service Road West, Oakville
9305 Twin Oaks Drive, Windsor
2 Lone Oak Court, Toronto
6885–6895 Menway Court, Mississauga
896 Meyerside Drive, Mississauga
880 Rangeview Road, Mississauga
135 Pinebush Road, Cambridge
5905 Kennedy Road, Mississauga
6045 Kestrel Road, Mississauga
2946 Walker Road, Windsor
781 Westgate Road, Oakville
6520 Gottardo Court, Mississauga
750 Barmac Drive, Toronto
7420 Pacific Circle, Mississauga
1300 Fewster Road, Mississauga
5805 Kennedy Road, Mississauga
5380 Timberlea Boulevard, Mississauga
5462 Timberlea Boulevard, Mississauga
Owned share of
total GLA in
thousands of
square feet
Clear ceiling height
(warehouse
component) in feet
Owned share of
site area in acres
53
48
44
44
43
41
40
38
37
32
30
30
29
29
29
27
25
24
23
22
22
21
21
19
16
16
14
13
4,338
5,081
315
210
208
180
177
170
114
101
98
97
95
82
81
79
74
72
66
47
46
44
38
35
32
30
26
24
24
24
22
20
18
20.0
26.8
24.0
20.0
20.0
16.0
20.0
18.0
22.0
19.0
16.0
20.0
15.0
16.0
20.0
24.0
15.0
16.0
19.0
21.0
16.0
16.0
16.0
14.0
16.0
16.0
13.0
13.0
21.1
21.8
27.0
24.0
21.0
20.0
24.0
24.0
24.0
22.0
24.0
18.0
28.0
28.0
20.0
22.0
28.0
24.0
20.0
20.0
24.0
60.0
22.0
20.0
22.0
22.0
18.0
18.0
18.0
14.0
18.0
18.0
18.0
2.7
4.4
3.5
3.5
10.2
1.9
2.4
2.8
2.5
3.2
1.2
1.3
1.5
1.4
4.4
2.1
1.3
1.2
1.2
1.0
1.3
2.1
1.4
1.1
1.1
1.0
1.2
1.2
262.1
321.4
16.3
10.3
9.9
6.9
9.0
8.6
12.7
4.1
4.4
6.0
6.9
6.4
3.9
3.5
5.2
4.4
3.4
2.4
3.2
5.6
2.1
1.8
4.0
4.2
1.2
1.5
1.2
1.2
1.0
1.0
1.0
Dream Industrial REIT 2019 Annual Report | 49
Number
of tenants
13
7
5
9
2
2
6
4
9
3
4
2
6
5
5
6
4
8
2
3
6
4
10
4
5
4
2
9
496
511
1
1
1
1
1
1
1
1
0
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
Weighted average
remaining lease
term in years
In-place and
committed
occupancy
3.3
3.1
7.0
3.6
5.2
6.2
3.8
2.4
2.5
1.2
1.5
2.4
2.4
1.1
2.4
1.9
2.2
3.0
0.9
3.4
2.7
2.6
2.2
5.0
4.6
2.3
2.7
2.1
3.3
3.7
2.2
14.5
5.8
3.1
5.0
10.0
8.1
6.6
–
7.0
8.0
4.5
5.3
1.0
0.6
2.5
5.2
6.4
2.8
0.5
6.1
4.3
3.0
10.7
2.0
9.3
4.5
1.5
3.8
0.1
0.4
94.8%
72.9%
100.0%
84.9%
100.0%
100.0%
100.0%
86.6%
100.0%
100.0%
100.0%
100.0%
100.0%
74.8%
92.4%
100.0%
85.7%
100.0%
97.1%
100.0%
100.0%
100.0%
90.9%
100.0%
100.0%
84.6%
71.9%
100.0%
93.5%
94.4%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
0.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
Property
5370 Timberlea Boulevard, Mississauga
5750 Coopers Avenue, Mississauga
5444 Timberlea Boulevard, Mississauga
Ontario Single-tenant
6581–6601 Kitimat Road, Mississauga
1602 Tricont Avenue, Whitby
161 West Mall, Toronto
2360 Cornwall Road, Oakville
45 A & B West Wilmot Street, Richmond Hill
255 Wicksteed Avenue, Toronto
2140–2150 Winston Park Drive, Mississauga
90 Nolan Court, Markham
55 Horner Avenue, Etobicoke
4515/4525 Rhodes Drive, Windsor
1111 Tristar Drive, Mississauga
903–951 Matheson Boulevard, Mississauga
1100 Courtney Park Drive, Mississauga
100 Lingard Road, Cambridge
5825–5895 Kennedy Road, Mississauga
6400 Shawson Drive, Mississauga
5554 Tomken Road, Mississauga
6300 Viscount Road, Mississauga
845 Harrington Court, Burlington
5716–5730 Coopers Avenue, Mississauga
855 Matheson Boulevard, Mississauga
333 Wyecroft Road, Oakville
5448 Timberlea Boulevard, Mississauga
5430 Timberlea Boulevard, Mississauga
5466 Timberlea Boulevard, Mississauga
135 East Beaver Creek, Richmond Hill
5420 Timberlea Boulevard, Mississauga
Ontario Multi-tenant
Ontario
1411, 1421 and 1451 rue Ampère, Boucherville
1900 Dickson Street (Molson Distribution Centre), Montréal
2350 de la Province, Longueuil
1125 50e Avenue, Montréal
8000 Avenue Blaise-Pascal, Montréal
1313 Autoroute Chomedey, Laval
650 rue Bergeron, Drummondville
10555 Henri-Bourassa Ouest, St-Laurent
2340 St. Laurent Blvd., Ottawa
101 Autoroute 440, Laval
1805 50e Avenue, Lachine
1421 rue Nobel, Sainte-Julie
3700–3720 AutoRoute des Laurentides, Laval
1870 Boulevard Saint-Régis, Dollard-des-Ormeaux
29 rue de Varennes, Gatineau
361 Boulevard Montpellier, St-Laurent
Québec Single-tenant(1)
1250–1280 Humber Place, Ottawa
2995 Boulevard le Corbusier, Laval
5000 rue Fairway & 1645 50e Avenue, Lachine
1700–1764 50e Avenue, Lachine
1100–1154 rue Berlier, Laval
9090–9100 Boulevard Cavendish, St-Laurent
333 Chemin du Tremblay, Boucherville
1876–1936 32e Avenue, Lachine
1500 rue Nobel, Boucherville
2000 32e Avenue, Lachine
1624–1692 50e Avenue, Lachine
Owned share of
total GLA in
thousands of
square feet
Clear ceiling height
(warehouse
component) in feet
Owned share of
site area in acres
Number
of tenants
Weighted average
remaining lease
term in years
In-place and
committed
occupancy
17
16
15
2,697
318
259
205
200
189
178
172
125
96
92
78
77
72
70
68
62
61
60
56
54
47
43
32
31
29
29
20
2,723
5,420
458
225
222
211
206
184
181
121
115
68
61
51
50
40
24
19
2,236
231
131
108
95
92
89
87
85
82
81
79
18.0
18.0
18.0
23.6
25.0
35.0
50.0
28.0
19.0
24.0
19.0
18.0
22.0
22.0
22.0
18.0
22.0
46.0
15.0
22.0
18.0
16.0
15.0
14.0
18.0
18.0
16.0
17.0
18.0
17.0
18.0
25.1
24.3
27.0
26.0
20.0
26.0
23.0
26.0
28.0
22.0
24.0
22.0
19.0
22.0
24.0
22.0
20.0
18.0
24.5
26.0
24.0
18.0
24.0
18.0
18.0
18.0
18.0
18.0
18.0
19.0
0.8
0.9
0.9
155.9
16.9
19.0
10.5
10.3
8.0
8.0
7.5
7.0
6.2
9.0
3.7
3.8
3.4
5.4
3.4
2.9
3.2
4.3
4.0
3.4
2.0
2.7
1.8
1.8
1.6
1.8
1.1
152.7
308.6
21.6
17.1
11.5
13.3
13.8
8.1
10.5
10.5
6.2
4.6
2.3
4.3
3.6
1.8
3.4
1.2
133.8
11.7
4.7
5.5
4.2
4.5
7.5
3.8
4.7
4.1
4.8
4.3
Dream Industrial REIT 2019 Annual Report | 50
1
1
1
33
15
5
2
3
40
3
40
29
3
6
2
8
3
2
8
3
10
4
10
24
12
8
2
2
2
5
2
253
286
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
16
7
7
4
1
9
2
3
3
7
4
7
3.2
1.2
0.6
5.5
4.2
7.4
6.1
2.9
2.9
3.7
2.9
2.6
3.9
2.9
1.2
2.2
1.8
3.1
3.6
4.0
3.3
1.2
4.5
2.3
2.8
3.0
5.5
8.1
3.8
0.5
1.3
3.8
4.7
5.4
3.0
2.1
4.8
2.2
5.4
3.0
1.1
5.3
3.4
1.4
1.8
10.6
1.4
1.1
6.8
3.8
4.8
2.7
3.3
1.8
1.1
2.2
2.9
5.0
1.8
2.7
1.4
100.0%
100.0%
100.0%
96.4%
100.0%
97.8%
100.0%
100.0%
97.9%
100.0%
93.4%
98.2%
90.7%
71.0%
100.0%
100.0%
86.1%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
97.5%
96.9%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
99.8%
95.1%
96.8%
100.0%
100.0%
96.1%
100.0%
100.0%
100.0%
98.2%
Property
1151–1179 Autoroute 440, Laval
10001–10091 Renaude-Lapointe, Montréal
2101 rue Nobel, Sainte-Julie
1950 32e Avenue, Montréal
1825–1865 32e Avenue, Montréal
4300–4400 Boulevard Bois-Franc, St-Laurent
4605–4645 rue Fairway & 1405–1465 46e Avenue, Lachine
1010 rue Berlier & 2854–2870 Boulevard Industriel, Laval
1025–1087 Autoroute 440, Laval
585–625 Avenue Meloche, Dorval
135 Chemin du Tremblay, Boucherville
Québec Multi-tenant(1)
Québec
Total Canadian Portfolio
445 Couchville Industrial Blvd, Nashville, TN
860 Marine Drive, Charlotte, NC
9000 Smith’s Mill Road, Columbus, OH
5445 Guion Road, Indianapolis, IN
3208 E Blue Lick Road, Louisville, KY
1201 Perry Road, Indianapolis, IN
3800 Sunset Avenue, Chicago, IL
7730 American Way, Orlando, FL
4777–4791 Roberts Road, Columbus, OH
2375–2405 International Street, Columbus, OH
2250–2280 International Street, Columbus, OH
United States Single-tenant
5605 Holmescrest Lane, Memphis, TN
4770 Southpoint Drive, Memphis, TN
5100 W 123rd Street, Chicago, IL
5300 Proviso Drive, Chicago, IL
8860 Smith’s Mill Road, Columbus, OH
8820 Smith’s Mill Road, Columbus, OH
301–363 N Third Avenue, Chicago, IL
1819 N Walcutt Road, Columbus, OH
4311 Janitrol Road, Columbus, OH
640–700 Dearborn Park Lane, Columbus, OH
2275–2353 International Street, Columbus, OH
2111–2191 International Street, Columbus, OH
2000 Conner Road, Cincinnati, OH
2200–2236 International Street, Columbus, OH
2100 Conner Road, Cincinnati, OH
2350–2380 International Street, Columbus, OH
4701–4717 Roberts Road, Columbus, OH
2300–2330 International Street, Columbus, OH
United States Multi-tenant
United States
Total Portfolio Single-tenant buildings
Total Portfolio Multi-tenant buildings
Total Portfolio
(1) Includes two properties located in Ottawa.
Owned share of
total GLA in
thousands of
square feet
Clear ceiling height
(warehouse
component) in feet
Owned share of
site area in acres
Number
of tenants
Weighted average
remaining lease
term in years
In-place and
committed
occupancy
79
78
73
72
72
69
61
59
57
55
50
1,885
4,121
14,622
716
472
417
380
303
252
209
193
52
52
52
3,098
885
500
465
343
304
264
250
243
240
108
102
102
77
76
63
52
52
51
4,177
7,275
8,774
13,123
21,897
19.0
18.0
20.0
18.0
18.0
18.0
19.0
19.0
18.0
18.0
16.0
19.9
22.4
22.9
32.0
30.0
32.0
28.0
28.0
29.5
24.0
25.0
21.0
21.0
21.0
29.1
32.0
32.0
30.0
30.0
32.0
30.0
21.0
18.0
30.0
24.0
21.0
21.0
22.0
21.0
22.0
21.0
21.0
21.0
28.2
28.6
26.0
24.0
24.8
3.9
3.7
4.8
4.5
4.9
3.9
4.0
3.1
2.8
2.7
2.4
100.5
234.3
864.3
58.6
26.0
21.9
27.5
16.7
12.3
10.0
20.6
26.1
14.8
6.1
14
3
5
8
8
4
5
7
10
2
8
128
144
941
1
1
1
1
0
1
1
1
1
1
1
240.6
10
47.3
23.3
27.0
17.0
17.0
15.1
14.3
11.3
12.7
5.9
14.8
8.6
4.9
6.1
4.0
6.1
26.1
6.1
267.6
508.2
589.6
782.9
1,372.5
2
2
2
2
4
4
2
5
3
4
1
5
4
1
4
2
3
3
53
63
74
930
1,004
2.2
3.9
4.4
2.7
3.1
2.3
3.4
1.6
1.5
3.5
1.7
2.9
3.4
4.0
6.3
3.0
6.5
2.2
–
3.2
3.0
3.2
2.3
1.1
3.2
4.3
4.6
4.1
6.0
4.0
3.1
6.2
3.7
3.1
4.2
2.0
6.5
3.7
1.9
0.5
3.6
5.3
3.8
4.4
4.3
4.3
4.7
3.7
4.1
100.0%
96.5%
88.1%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
84.8%
98.3%
99.2%
96.7%
100.0%
100.0%
100.0%
100.0%
0.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
90.2%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
85.0%
100.0%
100.0%
61.0%
100.0%
27.1%
80.9%
100.0%
100.0%
100.0%
96.6%
93.9%
95.4%
96.0%
95.8%
Dream Industrial REIT 2019 Annual Report | 51
Management’s responsibility for the consolidated financial statements
The accompanying consolidated financial statements, the notes thereto and other financial information contained in this Annual
Report have been prepared by, and are the responsibility of, the management of Dream Industrial Real Estate Investment Trust.
These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards,
using management’s best estimates and judgments as appropriate.
The Board of Trustees is responsible for ensuring that management fulfills its responsibility for financial reporting and internal
controls. The Audit Committee, which comprises appointed trustees, meets with management as well as the external auditor
to satisfy itself that management is properly discharging its financial responsibilities and to review its consolidated financial
statements and the report of the auditor. The Audit Committee reports its findings to the Board of Trustees, which approves the
consolidated financial statements.
PricewaterhouseCoopers LLP, the independent auditor, has audited the consolidated financial statements in accordance with
Canadian generally accepted auditing standards. The auditor had full and unrestricted access to the Audit Committee, with or
without management present.
“Brian Pauls”
Brian Pauls
Chief Executive Officer
Toronto, Ontario, February 18, 2020
“Lenis Quan”
Lenis Quan
Chief Financial Officer
Dream Industrial REIT 2019 Annual Report | 52
Independent auditor’s report
To the Unitholders of Dream Industrial Real Estate Investment Trust
Our opinion
In our opinion, the accompanying consolidated financial statements present fairly, in all material
respects, the financial position of Dream Industrial Real Estate Investment Trust and its subsidiaries
(together, the Trust) as at December 31, 2019 and 2018, and its financial performance and its cash flows
for the years then ended in accordance with International Financial Reporting Standards as issued by the
International Accounting Standards Board (IFRS).
What we have audited
The Trust’s consolidated financial statements comprise:
●
●
●
●
●
the consolidated balance sheets as at December 31, 2019 and 2018;
the consolidated statements of comprehensive income for the years then ended;
the consolidated statements of changes in equity for the years then ended;
the consolidated statements of cash flows for the years then ended; and
the notes to the consolidated financial statements, which include a summary of significant
accounting policies.
Basis for opinion
We conducted our audit in accordance with Canadian generally accepted auditing standards. Our
responsibilities under those standards are further described in the Auditor’s responsibilities for the audit
of the consolidated financial statements section of our report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our opinion.
Independence
We are independent of the Trust in accordance with the ethical requirements that are relevant to our audit
of the consolidated financial statements in Canada. We have fulfilled our other ethical responsibilities in
accordance with these requirements.
Other information
Management is responsible for the other information. The other information comprises the
Management’s Discussion and Analysis and the information, other than the consolidated financial
statements and our auditor’s report thereon, included in the annual report.
PricewaterhouseCoopers LLP
PwC Tower, 18 York Street, Suite 2600, Toronto, Ontario, Canada M5J 0B2
T: +1 416 863 1133, F: +1 416 365 8215
“PwC” refers to PricewaterhouseCoopers LLP, an Ontario limited liability partnership.
Dream Industrial REIT 2019 Annual Report | 53
Our opinion on the consolidated financial statements does not cover the other information and we do not
express any form of assurance conclusion thereon.
In connection with our audit of the consolidated financial statements, our responsibility is to read the
other information identified above and, in doing so, consider whether the other information is materially
inconsistent with the consolidated financial statements or our knowledge obtained in the audit, or
otherwise appears to be materially misstated.
If, based on the work we have performed, we conclude that there is a material misstatement of this other
information, we are required to report that fact. We have nothing to report in this regard.
Responsibilities of management and those charged with governance for the
consolidated financial statements
Management is responsible for the preparation and fair presentation of the consolidated financial
statements in accordance with IFRS, and for such internal control as management determines is
necessary to enable the preparation of consolidated financial statements that are free from material
misstatement, whether due to fraud or error.
In preparing the consolidated financial statements, management is responsible for assessing the Trust’s
ability to continue as a going concern, disclosing, as applicable, matters related to going concern and
using the going concern basis of accounting unless management either intends to liquidate the Trust or to
cease operations, or has no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the Trust’s financial reporting process.
Auditor’s responsibilities for the audit of the consolidated financial statements
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as
a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s
report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee
that an audit conducted in accordance with Canadian generally accepted auditing standards will always
detect a material misstatement when it exists. Misstatements can arise from fraud or error and are
considered material if, individually or in the aggregate, they could reasonably be expected to influence the
economic decisions of users taken on the basis of these consolidated financial statements.
As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise
professional judgment and maintain professional skepticism throughout the audit. We also:
●
●
Identify and assess the risks of material misstatement of the consolidated financial statements,
whether due to fraud or error, design and perform audit procedures responsive to those risks, and
obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk
of not detecting a material misstatement resulting from fraud is higher than for one resulting from
error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the
override of internal control.
Obtain an understanding of internal control relevant to the audit in order to design audit
procedures that are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Trust’s internal control.
Dream Industrial REIT 2019 Annual Report | 54
●
●
●
●
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting
estimates and related disclosures made by management.
Conclude on the appropriateness of management’s use of the going concern basis of accounting
and, based on the audit evidence obtained, whether a material uncertainty exists related to events
or conditions that may cast significant doubt on the Trust’s ability to continue as a going concern. If
we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s
report to the related disclosures in the consolidated financial statements or, if such disclosures are
inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to
the date of our auditor’s report. However, future events or conditions may cause the Trust to cease
to continue as a going concern.
Evaluate the overall presentation, structure and content of the consolidated financial statements,
including the disclosures, and whether the consolidated financial statements represent the
underlying transactions and events in a manner that achieves fair presentation.
Obtain sufficient appropriate audit evidence regarding the financial information of the entities or
business activities within the Trust to express an opinion on the consolidated financial statements.
We are responsible for the direction, supervision and performance of the group audit. We remain
solely responsible for our audit opinion.
We communicate with those charged with governance regarding, among other matters, the planned scope
and timing of the audit and significant audit findings, including any significant deficiencies in internal
control that we identify during our audit.
We also provide those charged with governance with a statement that we have complied with relevant
ethical requirements regarding independence, and to communicate with them all relationships and other
matters that may reasonably be thought to bear on our independence, and where applicable, related
safeguards.
The engagement partner on the audit resulting in this independent auditor’s report is Carly Stallwood.
(signed) “PricewaterhouseCoopers LLP”
Chartered Professional Accountants, Licensed Public Accountants
Toronto, Ontario
February 18, 2020
Dream Industrial REIT 2019 Annual Report | 55
Consolidated balance sheets
(in thousands of Canadian dollars)
Assets
NON-CURRENT ASSETS
Investment properties
Equity accounted investment
Other non-current assets
CURRENT ASSETS
Amounts receivable
Prepaid expenses and other assets
Cash and cash equivalents
Assets held for sale
Total assets
Liabilities
NON-CURRENT LIABILITIES
Debt
Subsidiary redeemable units
Deferred Unit Incentive Plan
Deferred income tax liabilities, net
Other non-current liabilities
CURRENT LIABILITIES
Debt
Amounts payable and accrued liabilities
Total liabilities
Equity
Unitholders’ equity
Retained earnings
Accumulated other comprehensive income (loss)
Total equity
Total liabilities and equity
See accompanying notes to the consolidated financial statements.
Note
December 31,
2019
December 31,
2018
5
7
8
9
10
11
12
13
14
15
11
16
$
2,428,664 $
8,008
4,773
2,441,445
7,410
2,499
441,537
451,446
—
$
2,892,891 $
$
952,917 $
243,771
10,250
9,511
14,467
1,230,916
61,651
40,752
102,403
1,333,319
17
17
17, 19
1,372,564
187,443
(435 )
1,559,572
2,892,891 $
$
2,138,411
—
3,496
2,141,907
4,310
5,490
4,968
14,768
3,900
2,160,575
860,789
176,613
6,608
1,266
14,013
1,059,289
76,941
35,020
111,961
1,171,250
887,757
90,621
10,947
989,325
2,160,575
On behalf of the Board of Trustees of Dream Industrial Real Estate Investment Trust:
“Vincenza Sera”
Vincenza Sera
Trustee
“Sheldon Wiseman”
Sheldon Wiseman
Trustee
Dream Industrial REIT 2019 Annual Report | 56
Consolidated statements of comprehensive income
(in thousands of Canadian dollars)
Investment properties revenue
Investment properties operating expenses
Net rental income
Other income
Interest and fee income
Other expenses
General and administrative
Interest:
Debt
Subsidiary redeemable units
Depreciation and amortization
Fair value adjustments and net losses on transactions and other activities
Fair value adjustments to investment properties
Fair value adjustments to financial instruments
Net losses on transactions and other activities
Income before income taxes and discontinued operations
Current and deferred income taxes expense, net
Income from continuing operations, net of taxes
Income from discontinued operations, net of taxes
Net income
Other comprehensive income (loss)
Items that will be reclassified subsequently to net income:
Unrealized gain (loss) on foreign currency translation, net of taxes
Unrealized gain (loss) on effective interest rate hedge, net of taxes
Comprehensive income
See accompanying notes to the consolidated financial statements.
Note
20
$
21
22
22
5, 10
23
24
14
10
19
19
$
$
$
Year ended December 31,
2019
2018
195,331
160,443
(56,305 )
(46,208 )
139,026
114,235
$
1,910
1,910
657
657
(12,060 )
(10,095 )
(34,956 )
(13,376 )
(55 )
(60,447 )
180,488
(70,817 )
(4,929 )
104,742
185,231
(8,458 )
176,773
2,659
179,432
(11,346 )
(36 )
(11,382 )
168,050
$
$
$
(34,325 )
(13,376 )
(59 )
(57,855 )
108,308
(17,120 )
(4,394 )
86,794
143,831
(1,236 )
142,595
14,933
157,528
11,990
92
12,082
169,610
Dream Industrial REIT 2019 Annual Report | 57
Consolidated statements of changes in equity
Attributable to unitholders of the Trust
(in thousands of Canadian dollars)
Year ended December 31, 2019
Balance at January 1, 2019
Net income
Distributions paid and payable
Public offerings and private placement of REIT Units
Distribution Reinvestment Plan(1)
REIT Units issued for vested deferred trust units
and Unit Purchase Plan
Issue costs and other
Other comprehensive loss
Balance at December 31, 2019
Number of
REIT Units
92,062,659 $
—
—
39,436,500
3,170,829
Unitholders’
equity
887,757 $
—
—
465,313
38,311
Note
18
17
17
Retained
earnings
90,621 $
179,432
(82,610 )
—
—
Accumulated
other
comprehensive
income (loss)
10,947 $
—
—
—
—
Total
equity
989,325
179,432
(82,610 )
465,313
38,311
13, 17
131,893
19
—
—
134,801,881 $
1,573
(20,390 )
—
1,372,564 $
—
—
—
187,443 $
—
—
(11,382 )
(435 ) $
1,573
(20,390 )
(11,382 )
1,559,572
(1) Includes REIT Units issued under the Distribution Reinvestment Plan for LP B Units.
(in thousands of Canadian dollars)
Year ended December 31, 2018
Balance at January 1, 2018
Net income
Distributions paid and payable
Public offering of REIT Units
Distribution Reinvestment Plan(1)
REIT Units issued for vested deferred trust units
and Unit Purchase Plan
Issue costs and other
Other comprehensive income
Balance at December 31, 2018
Note
18
17
17
13, 17
19
Number of
REIT Units
75,104,843 $
—
—
13,915,000
2,863,035
179,781
—
—
92,062,659 $
Unitholders’
equity
720,437 $
—
—
144,020
28,292
1,690
(6,682 )
—
887,757 $
(1) Includes REIT Units issued under the Distribution Reinvestment Plan for LP B Units.
See accompanying notes to the consolidated financial statements.
Attributable to unitholders of the Trust
Retained
earnings
(deficit)
(7,056 ) $
157,528
(59,851 )
—
—
—
—
—
90,621 $
Accumulated
other
comprehensive
income (loss)
(1,135 ) $
—
—
—
—
—
—
12,082
10,947 $
Total
equity
712,246
157,528
(59,851 )
144,020
28,292
1,690
(6,682 )
12,082
989,325
Dream Industrial REIT 2019 Annual Report | 58
Consolidated statements of cash flows
(in thousands of Canadian dollars)
Generated from (utilized in) operating activities
Net income
Non-cash items:
Fair value adjustments to investment properties
Fair value adjustments to financial instruments
Depreciation and amortization
Other adjustments
Change in non-cash working capital
Investment in lease incentives and initial direct leasing costs
Generated from (utilized in) investing activities
Investment in building improvements
Investment in property and equipment
Acquisitions and transaction costs of investment properties
Deposit on acquisition of investment properties
Investment in equity accounted investment
Net proceeds from disposal of investment properties
Generated from (utilized in) financing activities
Borrowings
Lump sum repayments
Principal repayments
Financing costs additions
Debt settlement costs
Distributions paid on REIT Units
Cash proceeds on issuance of REIT Units
Issue costs paid on REIT Units
Cash proceeds on issuance of DUIP Units
Increase (decrease) in cash and cash equivalents
Foreign exchange gain (loss) on cash held in foreign currency
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
See accompanying notes to the consolidated financial statements.
Note
5, 10
23
25
25
25
8
7
11
10, 11
10, 11
11
18
17
13
Year ended December 31,
2018
2019
$
179,432 $
157,528
(178,097 )
70,817
2,557
29,105
(5,989 )
(13,230 )
84,595
(11,350 )
(61 )
(363,970 )
(2,700 )
(8,117 )
270,065
(116,133 )
403,442
(294,306 )
(24,752 )
(3,937 )
(1,359 )
(55,167 )
465,323
(19,930 )
(91 )
469,223
437,685
(1,116)
4,968
441,537 $
(107,875 )
17,120
2,999
17,726
(162 )
(9,482 )
77,854
(13,744 )
(274 )
(241,604 )
(1,322 )
—
—
(256,944 )
374,429
(311,906 )
(25,400 )
(2,878 )
—
(43,946 )
144,030
(6,852 )
—
127,477
(51,613 )
1,930
54,651
4,968
$
Dream Industrial REIT 2019 Annual Report | 59
Notes to the consolidated financial statements
(All dollar amounts in thousands of Canadian dollars, except for per unit amounts)
Note 1
ORGANIZATION
Dream Industrial Real Estate Investment Trust (“Dream Industrial REIT” or the “Trust”) is an open-ended investment trust created
pursuant to a Declaration of Trust, as amended and restated, under the laws of the Province of Ontario. The consolidated
financial statements of Dream Industrial REIT include the accounts of Dream Industrial REIT and its subsidiaries. Dream Industrial
REIT primarily owns and operates light industrial properties in key markets across North America.
A subsidiary of Dream Industrial REIT performs the property management function in Canada. A related party of
Dream Industrial REIT, Pauls Realty Services, LLC, performs the property management function in the U.S.
The principal office and centre of administration of the Trust is 30 Adelaide Street East, Suite 301, State Street Financial Centre,
Toronto, Ontario, M5C 3H1. The Trust is listed on the Toronto Stock Exchange (“TSX”) under the symbol “DIR.UN”.
Dream Industrial REIT’s consolidated financial statements for the year ended December 31, 2019 were authorized for issuance
by the Board of Trustees on February 18, 2020, after which they may only be amended with the Board of Trustees’ approval.
For simplicity, throughout the Notes, reference is made to the units of the Trust as follows:
• “REIT Units”, meaning units of the Trust;
• “LP B Units” or “subsidiary redeemable units”, meaning the Class B limited partnership units of Dream Industrial LP (“DILP”),
a subsidiary of the Trust;
• “Special Trust Units”, meaning units issued in connection with subsidiary redeemable units; and
• “Units”, meaning REIT Units and subsidiary redeemable units, collectively.
Note 2
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies used in the preparation of these consolidated financial statements are described below:
Basis of presentation and statement of compliance
The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards as
issued by the International Accounting Standards Board (“IFRS”).
Basis of consolidation
The consolidated financial statements comprise the financial statements of Dream Industrial REIT and its subsidiaries.
Subsidiaries are fully consolidated from the date of acquisition, the date on which the Trust obtains control, and continue to be
consolidated until the date such control ceases. Control exists when the Trust is exposed to, or has rights to, variable returns
from its involvement with the entity and has the ability to affect those returns through its power over the entity. All
intercompany balances, income and expenses, and unrealized gains and losses resulting from intercompany transactions are
eliminated in full.
Equity accounted investments
Equity accounted investments are investments over which the Trust has significant influence, but not control. Generally, the
Trust is considered to exert significant influence when it holds more than a 20% interest in an entity or partnership. However,
determining significant influence is a matter of judgment and specific circumstances and, from time to time, the Trust may hold
an interest of more than 20% in an entity or partnership without exerting significant influence. Conversely, the Trust may hold
an interest of less than 20% and exert significant influence through representation on the Board of Trustees, direction of
management or contractual agreements.
Dream Industrial REIT 2019 Annual Report | 60
The financial results of the Trust’s equity accounted investments are included in the Trust’s consolidated financial statements
using the equity method, whereby the investment is carried on the consolidated balance sheets at cost, adjusted for the Trust’s
proportionate share of post-acquisition profits and losses and for post-acquisition changes in excess of the Trust’s carrying
amount of its investment over the net assets of the equity accounted investments, less any identified impairment loss. The
Trust’s share of profits and losses is recognized in the share of income from equity accounted investments in the consolidated
statements of comprehensive income. If the Trust’s investment is reduced to zero, additional losses are not provided for, and a
liability is not recognized, unless the Trust has incurred legal or constructive obligations, or made payments on behalf of the
equity accounted investment.
At each reporting date, the Trust evaluates whether there is objective evidence that its interest in an equity accounted
investment is impaired. The entire carrying amount of the equity accounted investment is compared to the recoverable amount,
which is the higher of the value-in-use or fair value less costs to sell. The recoverable amount of each investment is considered
separately.
Where the Trust transacts with its equity accounted investments, unrealized profits and losses are eliminated to the extent of
the Trust’s interest in the investment. Balances outstanding between the Trust and equity accounted investments in which it
has an interest are not eliminated in the consolidated balance sheets.
Joint arrangements
The Trust enters into joint arrangements via joint operations and joint ventures. A joint arrangement is a contractual
arrangement pursuant to which the Trust and other parties undertake an economic activity that is subject to joint control,
whereby the strategic financial and operating policy decisions relating to the activities of the joint arrangement require the
unanimous consent of the parties sharing control, and that is referred to as joint operations. Joint arrangements that involve
the establishment of a separate entity or partnership in which each party to the venture has rights to the net assets of the
arrangements are referred to as joint ventures. In a co-ownership arrangement, the Trust owns jointly one or more investment
properties with another party and has direct rights to the investment property and obligations for the liabilities relating to the
co-ownership.
The Trust reports its interests in joint ventures using the equity method of accounting as previously described under “Equity
accounted investments”. The Trust reports its interests in co-ownerships as joint operations by accounting for its share of the
assets, liabilities, revenues and expenses. Under this method, the Trust’s consolidated financial statements reflect only the
Trust’s proportionate share of the assets, its share of any liabilities incurred jointly with the other ventures as well as any
liabilities incurred directly, its share of any revenues earned or expenses incurred by the joint operation, and any expenses
incurred directly.
Business combinations
The purchase method of accounting is used for acquisitions meeting the definition of a business. The consideration transferred
in a business combination is measured at fair value, which is calculated as the sum of the acquisition date fair values of the
assets and liabilities assumed, and any equity interests issued by the Trust in exchange for control of the acquiree.
Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at
their acquisition date fair values irrespective of the extent of any minority interest. The excess of the cost of acquisition over the
fair value of the Trust’s share of the identifiable net assets acquired is recorded as goodwill. If the cost of acquisition is less than
the fair value of the Trust’s share of the net assets acquired, the difference is recognized directly in the consolidated statements
of comprehensive income for the period as an acquisition gain. Any transaction costs incurred with respect to the business
combination are expensed in the period incurred.
Investment properties
Investment properties are initially recorded at cost, including related transaction costs in connection with asset acquisitions,
and include industrial properties held to earn rental income and/or for capital appreciation. Subsequent to initial recognition,
investment properties are accounted for at fair value. At the end of each reporting period, the Trust determines the fair value
of investment properties by:
1) considering current contracted sales prices for properties that are available for sale;
2) obtaining appraisals from qualified external professionals on a rotational basis for select properties; and
3) using internally prepared valuations applying the income approach.
Dream Industrial REIT 2019 Annual Report | 61
The income approach is derived from two methods: capitalization rate (“cap rate”) method and discounted cash flow method.
In applying the cap rate method, the stabilized net operating income (“stabilized NOI”) of each property is divided by an
appropriate cap rate with adjustments for items such as average lease up costs, vacancy rates, non-recoverable capital
expenditures, management fees, straight-line rents and other non-recurring items. In applying the discounted cash flow method,
the cash flows of each property are projected over an anticipated term, a terminal value is applied, and the cash flows are
discounted using an appropriate discount rate. On a quarterly basis, the Trust uses both the cap rate method and discounted
cash flow method to evaluate the fair value of its investment properties.
Building improvements are added to the carrying amount of investment properties only when it is probable that future
economic benefits associated with the expenditure will flow to the Trust and the cost of the item can be measured reliably.
Repairs and maintenance costs are recorded in investment properties operating expenses when incurred.
Initial direct leasing costs incurred in negotiating and arranging tenant leases are added to the carrying amount of investment
properties. Lease incentives, which include committed costs on commenced leases, costs incurred prior to lease
commencement to make leasehold improvements to tenants’ space, and cash allowances provided to tenants, are added to the
carrying amount of investment properties and are amortized on a straight-line basis over the term of the lease as a reduction
to investment properties revenue. Internal leasing costs are expensed in the period in which they are incurred.
Investment properties, including investment properties held for sale, are derecognized on disposal or when no future economic
benefits are expected from their use or disposal. Any transaction costs arising on derecognition of an investment property are
included in the consolidated statements of comprehensive income during the reporting period the asset is derecognized.
Straight-line rent receivables are added to the carrying amount of investment properties.
Assets held for sale
Assets and associated liabilities (or disposal groups) are classified as held for sale when their carrying amount is to be recovered
principally through a sale transaction and a sale is considered highly probable. Investment properties continue to be measured
at fair value. Debt directly related to assets held for sale is carried at amortized cost until disposal.
Other non-current assets
Other non-current assets include deposits on acquisitions of investment properties, property and equipment, and financial
assets. Deposits on acquisitions of investment properties are recorded at amortized cost. Property and equipment are stated at
cost less accumulated depreciation and accumulated impairment losses. Depreciation of property and equipment is calculated
using the straight-line method to allocate their cost, net of their residual values, over their expected useful lives. All other repairs
and maintenance are charged to consolidated statements of comprehensive income during the reporting period in which they
are incurred.
Other non-current assets are derecognized on disposal or when no future economic benefits are expected from their use or
disposal. Any gain or loss arising on derecognition of an asset (calculated as the difference between the net disposal proceeds
and the carrying amount of the asset) is included in the consolidated statements of comprehensive income during the reporting
period the asset is derecognized.
Cash and cash equivalents
Cash and cash equivalents include all short-term investments with an original maturity of three months or less and exclude cash
subject to restrictions that prevent its use for current purposes.
Dream Industrial REIT 2019 Annual Report | 62
Financial instruments
Classification and measurement of financial instruments
The following summarizes the Trust’s classification and measurement of financial assets and financial liabilities:
Financial assets
Deposits on acquisitions of investment properties(1)
Amounts receivable
Cash and cash equivalents
Financial liabilities
Mortgages(2)
Revolving credit facility(2)
Subsidiary redeemable units
Deferred Unit Incentive Plan
Tenant security deposits(3)
Amounts payable and accrued liabilities
Financial assets/financial liabilities
Interest rate swaps – designated as hedges(4)
Interest rate swaps – not designated as hedges(5)
Convertible debentures – conversion feature(6)
Classification and measurement
Financial asset at amortized cost
Financial asset at amortized cost
Financial asset at amortized cost
Financial liability at amortized cost
Financial liability at amortized cost
Financial liability at amortized cost
Financial liability at amortized cost
Financial liability at amortized cost
Financial liability at amortized cost
Hedge through other comprehensive income
Financial asset at fair value through profit and loss
Financial asset at fair value through profit and loss
(1) Included in “Other non-current assets” in the consolidated balance sheets.
(2) Included in “Debt” in the consolidated balance sheets.
(3) Included in “Other non-current liabilities” in the consolidated balance sheets.
(4) Nil balance in the 2019 consolidated balance sheet; included in “Prepaid expenses and other assets” in the 2018 consolidated balance sheet.
(5) Included in “Other non-current assets” and “Other non-current liabilities” in the consolidated balance sheets.
(6) Nil balance in the consolidated balance sheets.
Financial assets
Classification
The Trust classifies its financial assets in the following measurement categories:
•
those to be measured subsequently at fair value (either through other comprehensive income, or through profit or loss);
and
•
those to be measured at amortized cost.
The classification depends on the Trust’s business model for managing the financial assets and the contractual terms of the
cash flows.
Measurement
At initial recognition, the Trust measures a financial asset at its fair value, plus, in the case of a financial asset not at fair value
through profit or loss, transaction costs. Subsequent measurement depends on the Trust’s business model for managing the
financial assets and the contractual terms of the cash flows. There are three measurement categories in which the Trust classifies
its financial assets:
• amortized cost: assets that are held for the collection of contractual cash flows and those cash flows represent solely
payments of principal and interest;
•
•
fair value through other comprehensive income: assets that are held for the collection of contractual cash flows and for
selling the financial assets, and those cash flows represent solely payments of principal and interest;
fair value through profit or loss: assets that do not meet the criteria for amortized cost or fair value through other
comprehensive income.
For financial assets measured subsequently at amortized cost, the asset is amortized using the effective interest rate method.
Dream Industrial REIT 2019 Annual Report | 63
Impairment
The Trust recognizes an allowance for expected credit losses for all financial assets not held at fair value through profit or loss.
For amounts receivable, the Trust applies the simplified approach which requires expected lifetime losses to be recognized upon
initial recognition of the receivables. To measure the expected credit losses, the Trust has established a provision matrix that is
based on its historical credit loss experience based on days past due, adjusted for forward-looking factors specific to the tenant
and the economic environment. The Trust considers a financial asset in default when contractual payment is over 90 days past
due. However, in certain cases, the Trust may also consider a financial asset to be in default when internal or external information
indicates that it is unlikely to receive the outstanding contractual amounts in full.
Derecognition
Financial assets are derecognized only when the contractual rights to the cash flows from the financial asset expire or the Trust
transfers substantially all risks and rewards of ownership.
Financial liabilities
Classification
The Trust classifies its financial liabilities in the following measurement categories:
•
•
those to be measured subsequently at fair value through profit or loss; and
those to be measured at amortized cost.
Measurement
At initial measurement, financial liabilities are recognized at fair value, less, in the case of a financial liability at amortized cost,
transaction costs.
For financial liabilities measured subsequently at fair value, the liability is remeasured at fair value each reporting period, with
changes in fair value recognized in comprehensive income.
For financial liabilities measured subsequently at amortized cost, the liability is amortized using the effective interest rate
method. Under the effective interest rate method, any transaction fees, costs, discounts and premiums directly related to the
financial liabilities are recognized in comprehensive income over the expected life of the obligation.
Derecognition
A financial liability is derecognized when the obligation under the liability is discharged, cancelled or expired.
Equity
The Trust presents REIT Units as equity, notwithstanding the fact that the Trust’s REIT Units meet the definition of a financial
liability. Under IAS 32, the REIT Units are considered a puttable financial instrument because of the holder’s option to redeem
REIT Units, generally at any time, subject to certain restrictions, at a redemption price per unit equal to the lesser of 90% of a
20-day weighted average closing price prior to the redemption date and 100% of the closing market price on the redemption
date. The total amount payable by Dream Industrial REIT in any calendar month will not exceed $50 unless waived by
Dream Industrial REIT's Board of Trustees at their sole discretion. The Trust has determined that the REIT Units can be presented
as equity and not financial liabilities because the REIT Units have all of the following features, as defined in IAS 32 (hereinafter
referred to as the “puttable exemption”):
• REIT Units entitle the holder to a pro rata share of the Trust’s net assets in the event of its liquidation. Net assets are those
assets that remain after deducting all other claims on the assets;
• REIT Units are the class of instruments that are subordinate to all other classes of instruments as they have no priority over
other claims to the assets of the Trust on liquidation, and do not need to be converted into another instrument before they
are in the class of instruments that is subordinate to all other classes of instruments;
• All instruments in the class of instruments that is subordinate to all other classes of instruments have identical features;
• Apart from the contractual obligation for the Trust to redeem the REIT Units for cash or another financial asset, the REIT
Units do not include any contractual obligation to deliver cash or another financial asset to another entity, or to exchange
financial assets or financial liabilities with another entity under conditions that are potentially unfavourable to the Trust,
and it is not a contract that will or may be settled in the Trust’s own instruments;
Dream Industrial REIT 2019 Annual Report | 64
• The total expected cash flows attributable to the REIT Units over their lives are based substantially on the profit or loss, and
on the change in the recognized net assets and unrecognized net assets of the Trust over the life of the REIT Units.
REIT Units are initially recognized at the fair value of the consideration received by the Trust. Any transaction costs arising on
the issuance of REIT Units are recognized directly in unitholders’ equity as a reduction of the proceeds received.
Distributions
Distributions to unitholders are recognized in the period in which the distributions are declared and are recorded as a reduction
to retained earnings.
Deferred Unit Incentive Plan (“DUIP”)
As described in Note 13, the Trust has a Deferred Unit Incentive Plan (“DUIP”) that provides for the granting of deferred trust units
and income deferred trust units to trustees, employees and affiliates and their service providers (including the asset manager).
Over the vesting period, deferred trust units are recorded as a liability, and compensation expense is recognized at amortized
cost based on the fair value of the units. Once vested, the liability is remeasured at each reporting date at amortized cost, based
on the fair value of the corresponding REIT Units, with changes in fair value recognized in the consolidated statements of
comprehensive income as a fair value adjustment to financial instruments. Deferred trust units and income deferred units are
generally settled in REIT Units.
Revenue recognition
Rental income
Effective January 1, 2019, the Trust has adopted IFRS 16, “Leases” (“IFRS 16”), on a modified retrospective basis with no
restatement of comparatives (see Note 3). IFRS 16 applies to base rental income and property tax recoveries earned from leases
(“rental income”). The prior comparative period was reported under IAS 17, “Leases” (“IAS 17”). The adoption had no impact
on the timing or amount of revenue recognized.
The Trust accounts for tenant leases as operating leases, given that it has retained substantially all of the risks and rewards of
ownership of its investment properties. Lease revenue from investment properties includes base rents, property tax recoveries,
lease termination fees, and other rental revenue including recoveries for landlord work and tenant improvement allowances.
Revenue recognition under a lease commences when the tenant has a right to use the leased asset. The total amount of
contractual rent to be received from operating leases is recognized on a straight-line basis over the term of the lease; a straight-
line rent receivable, which is included in investment properties, is recorded for the difference between the rental revenue
recognized and the contractual amount received. Property tax recoveries are recognized as revenues in the period in which the
corresponding obligation arises and collectability is reasonably assured. Lease termination fees and other rental revenues are
recorded as earned.
Revenue from contracts with customers
The Trust has obligations to provide ongoing services related to its leases. These services include recoveries of operating
expenses and recoveries of capital expenditures from tenants in accordance with their leases (“recoveries revenue”).
Consideration received from tenants under lease agreements is allocated between rental income and recoveries revenue based
on relative stand-alone selling prices. For recoveries revenue, our performance obligations are satisfied over time as tenants
occupy the premises. Recoveries revenue is billed monthly to tenants based on budgeted estimates.
The Trust recognizes recoveries revenue for operating expenses based on actual costs incurred in accordance with the terms of
the related leases. Actual costs reflect the services provided. The Trust recognizes recoveries revenue for capital expenditures
over the asset’s expected useful life in accordance with the terms of the related leases. The amount of recoveries revenue is
determined by the actual costs incurred and any restrictions in lease agreements. If the services rendered exceed the monthly
charges billed, a receivable is recognized; if the monthly charges billed exceed the service rendered, a payable is recognized.
These current assets or liabilities are settled with tenants annually.
For all revenue streams from contracts with customers, revenue is measured at the best estimate of the amount the Trust
expects to receive for performing the services. Revenue is recognized only to the extent that it is highly probable that a significant
amount of the cumulative revenue recognized for a contract will not be reversed. The Trust is obligated to continue to provide
ongoing services over the remaining term of each lease contract. The Trust will recognize revenue on these remaining
performance obligations based on the actual cost incurred to fulfill the ongoing services in the period.
Any receivables arising from revenue contracts with customers are tested for impairment using the same model as for amounts
receivable as described above.
Dream Industrial REIT 2019 Annual Report | 65
Significant judgments in applying IFRS 15, “Revenue from Contracts with Customers” (“IFRS 15”)
The application of IFRS 15 requires the Trust to make the following significant judgments:
Estimation of transaction prices
The Trust exercises judgment in estimating the transaction price for revenues from contracts with customers. The Trust exercises
judgment with regards to the amount and timing of the revenue recognized for recoveries revenue contracts which are satisfied
over time. The amount of revenue recognized for recoveries revenue with variable consideration is constrained by the actual
costs incurred and any restrictions in lease agreements. The revenues related to these obligations are recorded over time as the
obligation of the Trust is to provide the recoveries revenue on an as needed basis throughout the contract period. The Trust
considers this to be a faithful depiction of the transfer of services.
Scoping of revenues
The Trust exercises judgment in determining which of its revenue streams that arise from lease agreements are in scope of
IFRS 15 and which are not. Specifically, the Trust considers whether a revenue stream related to a lease agreement is for the
lease of an asset or is for the provision of a distinct service. Revenues of the latter type are determined to be in scope of
IFRS 15, while the former are in scope of IFRS 16 (for the year ended December 31, 2019) or IAS 17, “Leases” (for the year ended
December 31, 2018).
Interest on debt
Interest on debt includes coupon interest, amortization of ancillary costs incurred in connection with the arrangement of
borrowings, and amortization of fair value adjustments on assumed debt. Financing costs are amortized to interest expense.
Income taxes
Dream Industrial REIT is taxed as a mutual fund trust for Canadian income tax purposes. The Trust expects to distribute all of its
taxable income to its unitholders, which enables the Trust to deduct such distributions for income tax purposes. As the income
tax obligations relating to the distributions are those of the individual unitholder, no provision for income taxes is required on
such amounts. The Trust expects to continue to distribute its taxable income and to qualify as a real estate investment trust
(“REIT”) for the foreseeable future.
For all U.S. subsidiaries and one Canadian subsidiary of the Trust, income taxes are accounted for using the asset and liability
method. Under this method, deferred income taxes are recognized for the expected future tax consequences of temporary
differences between the carrying value of balance sheet items and their corresponding tax values. Deferred income taxes are
computed using substantively enacted income tax rates or laws for the years in which the temporary differences are expected
to reverse or settle. Deferred tax assets are recognized only to the extent that they are realizable.
Provisions
Provisions for legal claims are recognized when the Trust has a present legal or constructive obligation as a result of past events,
it is probable an outflow of resources will be required to settle the obligation and the amount has been reliably estimated.
Provisions are not recognized for future operating losses.
Where there are a number of similar obligations, the likelihood an outflow will be required in a settlement is determined by
considering the class of obligations as a whole. A provision is recognized even if the likelihood of an outflow with respect to any
one item included in the same class of obligations may be small.
Provisions are measured at the present value of the expenditures expected to be required to settle the obligation using a rate
that reflects current market assessments of the time value of money and the risks specific to the obligation. The increase in the
provision due to passage of time is recognized as interest expense.
Impairment
The Trust assesses the possibility and amount of any impairment loss or write-down as it relates to the equity accounted
investment, amounts receivable and property and equipment.
IAS 28, “Investments in Associates and Joint Ventures” (“IAS 28”), requires management to use judgment in determining the
recoverable amount of equity accounted investments that are tested for impairment. Judgment is also involved in estimating
the value-in-use of the equity accounted investment, including estimates of future cash flows, discount rates and terminal rates.
The values assigned to these key assumptions reflect past experience and are consistent with external sources of information.
Dream Industrial REIT 2019 Annual Report | 66
Leases where the Trust is a lessee
Effective January 1, 2019, the Trust has adopted IFRS 16, “Leases” (“IFRS 16”), on a modified retrospective basis with no
restatement of comparative figures (see Note 3). IFRS 16 applies to all leases where the Trust is a lessee. The prior comparative
period was reported under IAS 17, “Leases” (“IAS 17”).
At the inception of a contract, the Trust assesses whether that contract is, or contains, a lease. A lease is a contract where the
right to direct the use of an asset owned by another party and to obtain the economic benefits deriving from that asset are
transferred to the Trust. Where the Trust is a lessee, the Trust recognizes a right-of-use (“ROU”) asset and a lease liability except
where the lease is for less than 12 months or the underlying asset is of low value as determined by the Trust. For short-term
leases and for leases of low-value assets, the lease payments are expensed evenly over the term of the lease.
At initial recognition, the lease liability is measured at the present value of the lease payments in the lease, including any renewal
options where it is reasonably certain the Trust will exercise the option, and the lease payments due after exercising the option
are estimable. These payments are discounted using the rate implicit in the lease or, where this rate is not determinable, at the
Trust’s incremental borrowing rate for borrowings secured by a similar asset and for a similar term as the lease. Lease payments
include fixed payments and variable payments, which depend on an index or rate, including any renewal options included in the
determination of the term of the lease. Subsequently, the lease liability is measured at amortized cost using the effective interest
rate method. The lease liability is remeasured when the lease agreement is modified or if there are changes to variable payments
dependent on an index or rate.
At inception, the ROU asset comprises the lease liability plus any direct costs of obtaining the lease less any incentives provided
by the lessor. The ROU asset is depreciated on a straight-line basis over the shorter of the term of the lease and the useful life
of the asset. When there are indicators of impairment of an ROU asset, the asset is tested for impairment. ROU assets are
included in investment properties and lease liabilities are included in other non-current liabilities.
Segment reporting
A reportable operating segment is a distinguishable component of the Trust that is engaged either in providing related products
or services (business segment) or in providing products or services within a particular economic environment (geographic
segment), and is subject to risks and rewards that are different from those of other reportable segments. The Trust’s primary
format for segment reporting is based on geographic segments. Operating segments are reported in a manner consistent with
the internal reporting provided to the chief operating decision-maker, determined to be the Chief Executive Officer (“CEO”) of
the Trust. The operating segments derive their revenue primarily from rental income from lessees. All of the Trust’s business
activities and operating segments are reported within the geographic segments.
Foreign currencies
The consolidated financial statements are presented in Canadian dollars, which is the functional currency of the Trust and the
presentation currency for the consolidated financial statements.
Assets and liabilities related to properties held in a foreign entity with a functional currency other than the Canadian dollar are
translated at the rate of exchange at the consolidated balance sheet dates. Revenues and expenses are translated at average
rates for the period, unless exchange rates fluctuate significantly during the period, in which case the exchange rates at the
dates of the transactions are used. The resulting foreign currency translation adjustments are recognized in other
comprehensive income.
Foreign currency transactions are translated into the functional currency using the exchange rates at the dates of the
transactions. Foreign currency denominated monetary assets are translated using the exchange rates at the consolidated
balance sheet dates. Gains and losses on translation of monetary items are recognized in comprehensive income as other
income, except for those intercompany loans to a foreign operation for which settlement is neither planned nor likely to occur
in the foreseeable future.
Critical accounting judgments, estimates and assumptions
Preparing the consolidated financial statements requires management to make judgments, estimates and assumptions that
affect the amounts reported. Management bases its judgments, estimates and assumptions on historical experience and other
factors it believes to be reasonable under the circumstances, but which are inherently uncertain and unpredictable, the result
of which forms the basis of the carrying amounts of assets and liabilities. However, uncertainty about these judgments,
estimates and assumptions could result in outcomes that could require a material adjustment to the carrying amount of the
affected asset or liability in the future.
Dream Industrial REIT 2019 Annual Report | 67
Critical accounting judgments
The following are the critical accounting judgments used in applying the Trust’s accounting policies that have the most significant
effect on the amounts in the consolidated financial statements:
Investment properties
Critical judgments are made in respect of the fair values of investment properties. The fair values of these investments are
reviewed at least quarterly by management with reference to independent property appraisals and market conditions existing
at the reporting date, using generally accepted market practices. The independent appraisers are experienced, nationally
recognized and qualified in the professional valuation of investment properties in their respective geographic areas. Judgment
is also applied in determining the extent and frequency of obtaining independent appraisals. At each reporting period, a select
number of properties, determined on a rotational basis, are valued by independent appraisers. For properties not subject to
independent appraisals, valuations are prepared internally during each reporting period.
Critical assumptions used in estimating the fair values of investment properties include cap rates, discount rates that reflect
current market uncertainties, terminal cap rates and market rents. Other key assumptions relating to the estimates of fair values
of investment properties include components of stabilized NOI, leasing costs and vacancy rates. The Trust examines the critical
and key assumptions at the end of each reporting period and updates these assumptions based on recent leasing activity and
external market data available at that time. If there is any change in these assumptions or in regional, national or international
economic conditions, the fair value of investment properties may change materially.
The Trust makes judgments with respect to whether lease incentives provided in connection with a lease enhance the value of
the leased space, which determines whether or not such amounts are treated as tenant improvements and added to investment
properties. Lease incentives, such as cash, rent-free periods and lessee or lessor owned improvements, may be provided to
lessees to enter into an operating lease. Lease incentives that do not provide benefits beyond the initial lease term are included
in the carrying amount of investment properties and are amortized as a reduction of rental revenue on a straight-line basis over
the term of the lease.
Judgment is also applied in determining whether certain costs are additions to the carrying amount of the investment property.
Business combinations
Accounting for business combinations under IFRS 3, “Business Combinations” (“IFRS 3”), only applies if it is considered that a
business has been acquired. Under IFRS 3, a business is defined as an integrated set of activities and assets conducted and
managed for the purpose of providing a return to investors or lower costs or other economic benefits directly and
proportionately to the Trust. A business generally consists of inputs, processes applied to those inputs, and resulting outputs
that are, or will be, used to generate revenues. In the absence of such criteria, a group of assets is deemed to have been acquired.
If goodwill is present in a transferred set of activities and assets, the transferred set is presumed to be a business. Judgment is
used by management in determining whether the acquisition of an investment property or a portfolio of investment properties
qualifies as a business combination in accordance with IFRS 3 or as an asset acquisition.
When determining whether the acquisition of an investment property or a portfolio of investment properties is a business
combination or an asset acquisition, the Trust applies judgment when considering the following:
• Whether the investment property or properties are capable of producing outputs;
• Whether the market participant could produce outputs if missing elements exist.
In particular, the Trust considers the following:
• Whether employees were assumed in the acquisition;
• Whether an operating platform has been acquired.
The Trust classifies an acquisition as an asset acquisition when it acquires a property or a portfolio of properties and does not
assume employees or does not acquire an operating platform.
Dream Industrial REIT 2019 Annual Report | 68
Impairment
The Trust assesses the possibility and amount of any impairment loss or write-down as it relates to the equity accounted
investment, amounts receivable and property and equipment.
IFRS 9, “Financial Instruments” (“IFRS 9”), requires management to use judgment in determining if the Trust’s financial assets
are impaired. In making this judgment, the Trust evaluates, among other factors, the credit risk of the counterparty and whether
there are indicators that credit risk on a financial instrument has changed significantly since initial recognition or the last
reassessment of credit risk. Where the credit risk of a financial asset has increased significantly since initial recognition, the Trust
records a loss allowance equal to the lifetime expected credit losses arising from that financial asset.
IAS 36, “Impairment of Assets” (“IAS 36”), requires management to use judgment in determining the recoverable amount of
assets and equity accounted investments that are tested for impairment. Judgment is also involved in estimating the value-in-
use of the equity accounted investments, including estimates of future cash flows, discount rates and terminal rates. The values
assigned to these key assumptions reflect past experience and are consistent with external sources of information.
Note 3
CHANGES IN ACCOUNTING POLICIES AND DISCLOSURES
The Trust has adopted the following new and revised standards, along with any consequential amendments, effective January 1,
2019. These changes were made in accordance with the applicable transitional provisions as described below.
Leases
Effective January 1, 2019, the Trust has applied IFRS 16. IFRS 16 sets out the principles for the recognition, measurement and
disclosure of leases. While accounting for leases where the Trust is acting as the lessor is substantially unchanged, there have been
significant changes to the accounting for leases previously classified as operating leases where the Trust is acting as the lessee.
The Trust has applied IFRS 16 on a modified retrospective basis. The accounting policies applied under the new standard are
disclosed in Note 2.
As a result of adopting IFRS 16, no ROU assets or lease liabilities were recognized on transition. The Trust is not required to make
any adjustments on transition for leases in which it acts as a lessor.
Income taxes
On January 1, 2019, the Trust adopted International Financial Reporting Interpretations Committee (“IFRIC”) 23, “Uncertainty
over Income Tax Treatments” (“IFRIC 23”), which has clarified the application of the recognition and measurement requirements
in IAS 12, “Income Taxes” (“IAS 12”), for situations where there is uncertainty over income tax treatments. IFRIC 23 specifically
addresses whether an entity considers income tax treatments separately; assumptions that an entity makes regarding the
examination of tax treatments by taxation authorities; how an entity determines taxable income or loss, tax bases, unused tax
losses or credits and tax rates; and how an entity considers changes in facts and circumstances. IFRIC 23 does not apply to taxes
or levies outside the scope of IAS 12. IFRIC 23 did not have a material impact on the Trust’s consolidated financial statements.
Note 4
FUTURE ACCOUNTING POLICY CHANGES
Business combinations
The International Accounting Standards Board published an amendment to the requirements of IFRS 3, “Business Combinations”
(“IFRS 3”), in relation to whether a transaction meets the definition of a business combination. The amendment clarifies the
definition of a business and provides additional illustrative examples, including those relevant to the real estate industry. A
significant change in the amendment is the option for an entity to assess whether substantially all of the fair value of the gross
assets acquired is concentrated in a single asset or group of similar assets. If such a concentration exists, the transaction is not
viewed as an acquisition of a business and no further assessment of the business combination guidance is required. This will be
relevant where the value of the acquired entity is concentrated in one property, or a group of similar properties. The amendment
is effective for periods beginning on or after January 1, 2020, with earlier application permitted. There will be no impact on
transition since the amendments are effective for business combinations for which the acquisition date is on or after the
transition date.
Dream Industrial REIT 2019 Annual Report | 69
Note 5
INVESTMENT PROPERTIES
Balance at beginning of year
Additions:
Acquisition of investment properties
Building improvements
Lease incentives and initial direct leasing costs
Total additions to investment properties
Dispositions, reclassifications from (to) assets held for sale:
Dispositions of investment properties
Investment properties reclassified from (to) assets held for sale
Total dispositions, reclassifications from (to) assets held for sale
Changes included in net income:
Fair value adjustments to investment properties
Change in straight-line rent
Amortization of lease incentives
Total changes included in net income
Changes included in other comprehensive income:
Foreign currency translation gains (losses)
Total changes included in other comprehensive income
Balance at end of year
Change in unrealized income included in net income
Change in fair value of investment properties
Note
6
10
10
Year ended December 31,
2019
2018
1,722,988
2,138,411 $
$
376,693
9,780
14,418
400,891
(8,030 )
(260,120 )
(268,150 )
178,547
1,233
(1,617 )
178,163
248,185
13,824
14,061
276,070
—
11,300
11,300
107,875
968
(1,426 )
107,417
(20,651 )
(20,651 )
2,428,664 $
20,636
20,636
2,138,411
181,214 $
107,875
$
$
Investment properties includes $10,434 (December 31, 2018 – $10,591) related to straight-line rent receivables.
The following table summarizes the total investment properties pledged as security for debt as at December 31, 2019 and
December 31, 2018:
Pledged as collateral for mortgages
Pledged as collateral for revolving credit facility
Not pledged against debt
Total investment properties
December 31,
2019
2,062,146 $
270,267
96,251
2,428,664 $
December 31,
2018
1,739,543
208,174
190,694
2,138,411
$
$
Valuations of externally appraised investment properties
The following table summarizes the investment properties valued by qualified external valuation professionals for the years
ended December 31, 2019 and December 31, 2018:
Investment properties valued by qualified external valuation professionals
Number of investment properties valued by qualified external valuation professionals
Percentage of the total investment property values
$
December 31,
December 31,
2019
547,585 $
59
23%
2018
655,620
47
31%
Fair value adjustments to investment properties
For the year ended December 31, 2019, the Trust recorded a fair value gain of $180,488 to investment properties in our
continuing operations and a fair value loss of $2,391 from discontinued operations (see Note 10) for a total net fair value gain
of $178,097. These fair value adjustments comprise $178,547 of fair value gains recorded in investment properties and $450 of
fair value loss recorded in investment properties classified as assets held for sale (see Note 10).
For the year ended December 31, 2018, the Trust recorded a fair value gain to investment properties totalling $108,308 in our
continuing operations and a fair value loss to investment properties totalling $433 in our discontinued operations (see Note 10)
for a total net fair value gain of $107,875.
Dream Industrial REIT 2019 Annual Report | 70
The fair value of the investment properties as at December 31, 2019 and December 31, 2018 represents the Trust’s best estimate
based on the internally and externally available information as at the end of the reporting period. If there are any changes in
the critical and key assumptions used in valuing the investment properties, or in regional, national or international economic
conditions, the fair value of investment properties may change materially.
Assumptions used in the valuation of investment properties
As at December 31, 2019, the Trust’s investment properties, excluding assets held for sale at period-end and investment
properties acquired during the quarter, were valued using the cap rate and discounted cash flow methods. The significant and
unobservable Level 3 valuation metrics used in the methods as at December 31, 2019 and December 31, 2018 are set out in the
table below:
Cap rate method
Cap rate
Discounted cash flow method
Discount rate
Terminal cap rate
December 31, 2019(1)
Weighted
average(2) (%)
Range (%)
December 31, 2018(1)
Weighted
average(2) (%)
Range (%)
4.50–7.50
5.95
5.00–9.25
5.38–8.75
5.00–8.00
6.92
6.28
6.00–9.00
5.50–8.00
6.29
7.16
6.55
(1) Excludes assets held for sale at year-end and investment properties acquired during the quarter as applicable.
(2) Weighted average based on investment property fair value.
Sensitivities on assumptions
The following sensitivity tables outline the potential impact on the value of investment properties, excluding assets held for sale
at period-end and investment properties acquired during the quarter, assuming a change in the weighted average cap rates,
discount rates and terminal rates by a respective 25 basis points (“bps”) as at December 31, 2019:
Cap rate method
Increase (decrease) in value
Discounted cash flow method
Increase (decrease) in value
Impact to change in
weighted average cap rates
+25 bps
-25 bps
$
(100,048 ) $
108,820
Impact to change in
weighted average discount rates
-25 bps
+25 bps
Impact to change in
weighted average terminal cap rates
-25 bps
+25 bps
$
(47,330 ) $
48,498
$
(59,767 ) $
64,871
Note 6
INVESTMENT PROPERTY ACQUISITIONS
Detailed below are the investment property acquisitions completed for the years ended December 31, 2019 and December 31, 2018:
Year ended December 31, 2019
Midwest U.S. portfolio(2)
1602 Tricont Avenue, Whitby, Ontario
8820 Smith’s Mill Road, Columbus, Ohio
333 Wyecroft Road, Oakville, Ontario
1250–1280 Humber Place, Ottawa, Ontario
Saskatchewan portfolio(3)
300 Orenda Road, Brampton, Ontario
Total
Purchase price(1)
237,486
35,800
31,857
7,000
32,800
8,148
17,420
370,511
Date acquired
March 1, 2019
April 30, 2019
June 4, 2019
June 13, 2019
July 22, 2019
August 30, 2019
December 16, 2019
$
$
(1) Excludes transaction costs of $6,182.
(2) Midwest U.S. portfolio includes 21 investment properties: four in Chicago, Illinois; two in Cincinnati, Ohio; 12 in Columbus, Ohio; two in Indianapolis, Indiana;
and one in Louisville, Kentucky.
(3) Saskatchewan portfolio includes 50% interest in six investment properties in Regina, Saskatchewan, previously co-owned with Dream Hard Asset Alternatives
Trust (“DHAAT”), a related party of the Trust.
Dream Industrial REIT 2019 Annual Report | 71
Year ended December 31, 2018
860 Marine Drive, Charlotte, North Carolina
4770 Southpoint Drive, Memphis, Tennessee
5605 Holmescrest Lane, Memphis, Tennessee
161 The West Mall, Etobicoke, Ontario
8860 Smith’s Mill Road, Columbus, Ohio
9000 Smith’s Mill Road, Columbus, Ohio
10555 Henri-Bourassa Boulevard West, Saint-Laurent, Québec
Total
(1) Excludes transaction costs of $5,093.
Purchase price(1)
35,372
31,970
46,820
34,880
35,619
44,831
13,600
243,092
Date acquired
January 16, 2018
January 16, 2018
January 16, 2018
August 2, 2018
September 6, 2018
September 6, 2018
October 24, 2018
$
$
Detailed below are the considerations paid for the acquired investment properties for the years ended December 31, 2019 and
December 31, 2018:
Cash paid
Deposits paid in a prior period and released to seller on closing
Assumed mortgage(1)
Assumed non-cash working capital and capital expenditure obligations
Total consideration paid before transaction costs and land transfer taxes
Transaction costs and land transfer taxes
Total consideration paid for investment properties
(1) Debt assumed from DHAAT, a related party of the Trust.
Note
$
11
$
Year ended
December 31, 2019
357,954 $
1,322
5,384
5,851
370,511
6,182
376,693 $
Year ended
December 31, 2018
236,259
2,185
—
4,648
243,092
5,093
248,185
Note 7
JOINT ARRANGEMENTS
Joint Venture
The Trust participates in a joint venture with other related parties that own a property and account for its interest using the
equity method.
The Trust holds an 80% equity interest in a company formed for the purpose of acquiring land for development purposes. The
remaining interests are owned by Dream Asset Management Corporation and PAULS Corp, LLC, related parties of the Trust (see
Note 27). The Trust has joint control over this company via an operating agreement which requires unanimous consent.
Accordingly, the Trust has recorded its equity interest as an equity accounted investment.
On December 3, 2019, the Trust acquired 24.5 acres of development land in Las Vegas, Nevada for a purchase price including
transaction costs of $10,146 at 100% interest ($8,117 at the Trust’s 80% interest).
The following table presents the financial results of the joint venture as at December 31, 2019:
Non-current assets
Net assets
At 100%
ownership
interest
$ 10,010
$ 10,010
December 31, 2019
At 80%
ownership
interest
$ 8,008
$ 8,008
For the year ended December 31, 2019, net income of the joint venture was $nil.
Under the operating agreement, the Trust has committed to make a capital improvement contribution of $13,821 for the
development of the project.
Dream Industrial REIT 2019 Annual Report | 72
Co-owned investment properties
The Trust’s interests in co-owned investment properties are accounted for based on the Trust’s share of interest in the assets,
liabilities, revenues and expenses of the investment properties. On August 30, 2019, the Trust completed the acquisition of its
remaining 50% interest in a portfolio of six properties in Regina, Saskatchewan, previously co-owned with DHAAT, a related party
of the Trust (see Note 6).
The following amounts represent the ownership interest in the assets, liabilities, revenues and expenses of the co-owned
properties in which the Trust participates.
Non-current assets
Current assets(1)
Total assets
Non-current liabilities
Current liabilities(1)
Total liabilities
Net assets
December 31,
2019
—
146
146
—
45
45
101
$
$
$
December 31,
2018
8,020
506
8,526
5,345
503
5,848
2,678
$
(1) The Trust’s share of certain working capital balances was not transferred out of the co-ownership as a result of the Trust’s acquisition of DHAAT’s remaining
50% interest of the co-owned properties and will be settled through the co-ownership during the post-close period.
Net rental income
Other revenue and expenses, fair value adjustments and net losses on transactions and other activities
Share of net income (loss) from investments in co-owned properties
$
$
Year ended December 31,
2019
2018
672
442
123
(1,288 )
565
(616 )
$
$
Note 8
OTHER NON-CURRENT ASSETS
Deposits on acquisitions of investment properties
Property and equipment and other
Fair value of interest rate swaps
Total
Note 9
AMOUNTS RECEIVABLE
Trade receivables
Less: Provision for impairment of trade receivables
Trade receivables, net
Other amounts receivable
Amounts receivable
Note
30
December 31,
2019
2,700
651
1,422
4,773
$
$
$
December 31,
2018
1,364
625
1,507
3,496
$
$
December 31, December 31,
2018
1,540
(578 )
962
3,348
4,310
2019
2,837 $
(559 )
2,278
5,132
7,410 $
$
The carrying value of amounts receivable approximates fair value due to their current nature. The Trust determines the provision
for impairment of trade receivables using historical information, probability of collection, lease terms, tenant’s financial
condition and other factors.
Dream Industrial REIT 2019 Annual Report | 73
The Trust leases industrial properties to tenants under operating leases. Minimum rental commitments, including joint
operations, on non-cancellable tenant operating leases over their remaining terms are as follows:
2020
2021
2022
2023
2024
2025+
Total
$
December 31, 2019
133,833
122,658
103,779
75,475
75,018
100,972
611,735
$
Note 10
ASSETS HELD FOR SALE, DISCONTINUED OPERATIONS AND DISPOSITIONS
Assets held for sale
As at December 31, 2019, there were no investment properties classified as assets held for sale. As at December 31, 2018,
management had committed to a plan of sale for a property in the Eastern Canada region as the sale of that property was
considered to be highly probable.
On June 30, 2019, the Trust classified as assets held for sale all of the remaining investment properties in the Eastern Canada
region. On July 31, 2019, the Trust completed the sale of the entire Eastern Canada region for gross proceeds net of adjustments
and before transaction costs of $259,454.
The tables below summarize the activity of investment properties classified as assets held for sale and the associated debt for
the years ended December 31, 2019 and December 31, 2018.
Investment properties held for sale
Balance at beginning of year
Additions:
Building improvements
Lease incentives and initial direct leasing costs
Dispositions, transfers to/from investment properties:
Investment properties classified to (from) assets held for sale(1)
Disposition of investment properties
Changes included in net income:
Realized fair value adjustments to investment properties(2)
Amortization of lease incentives
Balance at end of year
Note
$
Year ended December 31,
2018
15,200
$
2019
3,900
349
709
5
260,120
(264,604 )
(450 )
(24 )
—
$
$
—
—
(11,300 )
—
—
—
3,900
(1) In 2018, one of the investment properties that was previously classified as held for sale was reclassified to investment properties totalling $11,300 due to a
change in the purchaser’s intention to lease the space instead of purchasing the property.
(2) Fair value adjustments to investment properties held for sale totalling $(450) was realized in income from discontinued operations, net of taxes, during the
year ended December 31, 2019.
Dream Industrial REIT 2019 Annual Report | 74
Debt related to investment properties held for sale
Balance at beginning of year
Cash items:
Lump sum repayments
Principal repayments
Non-cash items:
Debt classified as liabilities related to assets held for sale
Other adjustments(1)
Balance at end of year
Note
11
$
$
Year ended December 31,
2018
—
$
2019
—
(36,246)
(116)
36,367
(5)
—
$
—
—
—
—
—
(1) Other adjustments includes write-offs and amortization of deferred financing costs and fair value adjustments of assumed debt.
Discontinued operations – Eastern Canada region
The Trust presented separately the results of operations and cash flows from the Eastern Canada region for the years ended
December 31, 2019 and December 31, 2018 as follows:
Investment properties revenue
Investment properties operating expenses
Net rental income
Other expenses
Fair value adjustments and net losses on transactions and other activities
Fair value adjustments to investment properties
Net losses on transactions and other activities:
Costs on sale of investment properties
Debt settlement costs(1)
Internal leasing costs
Income from discontinued operations, net of taxes
$
$
$
Year ended December 31,
2018
33,105
(13,596 )
19,509
(3,457 )
2019
19,323
(8,552 )
10,771
(1,632 )
(2,391 )
(2,758 )
(964 )
(367 )
(6,480 )
2,659
$
(433 )
—
—
(686 )
(1,119 )
14,933
(1) Debt settlement costs include prepayment penalties and transaction costs of $971, write-offs of unamortized deferred financing costs of $41 and write-offs
of unamortized fair value adjustments on assumed debt of $(48).
Cash generated from (utilized in):
Operating activities
Investing activities
Financing activities(1)
$
Year ended December 31,
2019
$
4,476
257,330
(83,222 )
2018
14,103
(2,586 )
(3,588 )
(1) For the year ended December 31, 2019, financing activities included lump sum mortgage repayments of $80,673.
Dispositions
For the year ended December 31, 2019, the Trust disposed of the following investment properties:
9601 156th Avenue, Grande Prairie, Alberta
Eastern Canada portfolio(2)
2190 Industrial Drive, Regina, Saskatchewan
439 Sovereign, London, Ontario
Total
Note
5
5
$
$
Sale price(1)
6,500
259,454
Date disposed
May 24, 2019
July 31, 2019
1,530 November 8, 2019
5,150 November 28, 2019
272,634
(1) Sale price reflects gross proceeds net of adjustments and before transaction costs.
(2) Consisted of 38 investment properties in Dartmouth, Nova Scotia, and Moncton, New Brunswick.
There were no investment property dispositions in 2018.
Dream Industrial REIT 2019 Annual Report | 75
Note 11
DEBT
Mortgages
Revolving credit facility(1)
Total debt
Less: Current portion
Non-current debt
December 31,
2019
1,015,143
(575)
1,014,568
(61,651)
952,917
$
$
December 31,
2018
910,970
26,760
937,730
(76,941 )
860,789
$
$
(1) Revolving credit facility balance consists of financing costs, net of amortization. As at December 31, 2019, there were no amounts drawn on the revolving
credit facility.
Continuity of total debt
The following tables provide a continuity of total debt for the years ended December 31, 2019 and December 31, 2018:
December 31, 2019
Revolving
Total debt as at January 1, 2019
Cash items:
Borrowings
Lump sum repayments
Principal repayments
Financing costs additions
Non-cash items:
Debt classified as liabilities related to assets held for sale
Debt assumed on acquisition of investment property(2)
Foreign exchange adjustments
Other adjustments(3)
Total debt as at December 31, 2019
Note
Mortgages
credit facility(1)
$
910,970 $
26,760 $
228,648
(56,681)
(24,636)
(3,587)
(36,367)
5,384
(9,065)
477
10
6
$ 1,015,143 $
Total
937,730
403,442
(258,060 )
(24,636 )
(3,937 )
174,794
(201,379)
—
(350)
—
(791)
391
(575 ) $
(36,367 )
5,384
(9,856 )
868
1,014,568
(1) Amounts drawn against the revolving credit facility during the year are denominated in both Canadian and U.S. dollars. U.S. dollar amounts have been
converted at foreign exchange rates in accordance with the Trust’s accounting policies.
(2) Debt assumed from DHAAT, a related party of the Trust.
(3) Other adjustments include amortization of financing costs of $1,512 and amortization of fair value adjustments on assumed debt of $(644).
Total debt as at January 1, 2018
Cash items:
Borrowings
Lump sum repayments
Principal repayments
Financing costs additions
Non-cash items:
Foreign exchange adjustments
Other adjustments(2)
Total debt as at December 31, 2018
Mortgages
Revolving
credit facility(1)
$
782,254 $
(1,025) $
December 31, 2018
Convertible
debentures
Total
108,567 $ 889,796
241,029
(92,490 )
(25,400 )
(2,878 )
8,102
353
$
910,970 $
133,400
(108,166 )
—
—
—
(111,250 )
—
—
374,429
(311,906 )
(25,400 )
(2,878 )
2,141
410
26,760 $
—
2,683
10,243
3,446
— $ 937,730
(1) Amounts drawn against the revolving credit facility during the year are denominated in both Canadian and U.S. dollars. U.S. dollar amounts have been
converted at foreign exchange rates in accordance with the Trust’s accounting policies.
(2) Other adjustments include amortization of financing costs of $1,821, amortization of fair value adjustments on assumed debt of $(307) and write-off of
financing costs and fair value adjustments of $1,932 due to early redemption of the convertible debentures.
Dream Industrial REIT 2019 Annual Report | 76
Revolving credit facility
On March 15, 2019, the Trust amended its existing revolving credit facility by increasing the borrowing limit from $125,000 to
$150,000 and extended the maturity date from June 30, 2020 to June 30, 2021. The interest rate remained at bankers’
acceptances (“BA”), bearing interest at the BA rate plus 1.70% or Canadian prime rate plus 0.70% or U.S. LIBOR rate plus 1.70%
or U.S. base rate plus 0.70%.
The following tables summarize certain details of the Trust’s revolving credit facility as at December 31, 2019 and December 31,
2018:
Revolving credit facility(1)(2)
(1) BA rate plus 1.70% or Canadian prime rate plus 0.70% or U.S. LIBOR rate plus 1.70% or U.S. base rate plus 0.70%.
(2) The revolving credit facility has the ability to be drawn in Canadian and U.S. dollars.
Maturity date
June 30, 2021 $
Borrowing
capacity
150,000 $
Principal
outstanding
— $
Revolving credit facility(1)(2)
Maturity date
June 30, 2020 $
Borrowing
capacity
125,000 $
Principal
outstanding
(27,375 ) $
Other
adjustments
December 31, 2019
Amounts
available
to be drawn
150,000
— $
Other
adjustments
December 31, 2018
Amounts
available
to be drawn
98,194
569 $
(1) BA rate plus 1.70% or Canadian prime rate plus 0.70% or U.S. LIBOR rate plus 1.70% or U.S. base rate plus 0.70%.
(2) The revolving credit facility has the ability to be drawn in Canadian and U.S. dollars. As at December 31, 2018, principal outstanding amounts include
US$16,000, which has been converted in accordance with the Trust’s accounting policies. Other adjustments represent foreign exchange differences
between the lender and the Trust’s exchange rate at the balance sheet date.
Convertible debentures
The 5.25% convertible debentures were convertible at any time by the holder into 72.4638 REIT Units per one thousand dollars
of face value, representing a conversion price of $13.80 per unit. After December 31, 2017, the 5.25% convertible debentures
were redeemable by the Trust at a price equal to the principal amount plus accrued and unpaid interest with no constraints on
the traded price of the units. Interest on the 5.25% convertible debentures is payable at a rate of 5.25% semi-annually on
June 30 and December 31.
On August 2, 2018, the Trust early redeemed all of its outstanding 5.25% convertible debentures at par. The Trust paid $111,762 in
aggregate, representing $111,250 in principal outstanding on the redemption date and $512 in accrued interest. As a result of the
early redemption, the Trust wrote off $1,932 of unamortized financing costs and mark-to-market adjustments (see Note 24).
Debt weighted average effective interest rates and maturities
As at December 31, 2019, the weighted average effective interest rate on total debt was 3.73% (December 31, 2018 – 3.74%).
The effective interest rate includes the impact of fair value adjustments on assumed debt and financing costs.
As at December 31, 2019 and December 31, 2018, the Trust had fixed rate mortgages and a variable rate revolving credit facility.
The scheduled principal repayments and debt maturities are as follows:
2020
2021
2022
2023
2024
2025–2030
Total
Unamortized financing costs
Unamortized fair value adjustments
Total debt
Debt balance
due at maturity
Scheduled principal
repayments on
debt maturing in
future periods
$
$
34,758 $
143,935
89,484
138,704
62,838
398,492
868,211 $
27,539 $
25,228
20,628
16,012
14,449
49,625
153,481 $
$
Amount
62,297
169,163
110,112
154,716
77,287
448,117
1,021,692
(8,073)
949
1,014,568
Dream Industrial REIT 2019 Annual Report | 77
Note 12
SUBSIDIARY REDEEMABLE UNITS
The Trust has the following subsidiary redeemable units outstanding:
Note
Number of units issued
and outstanding
Balance at beginning of year
Remeasurement of carrying value
Balance at end of year
23
18,551,855 $
—
18,551,855 $
Amount
176,613
67,158
243,771
Number of units issued
and outstanding
18,551,855 $
—
18,551,855 $
Amount
163,256
13,357
176,613
Year ended December 31, 2019
Year ended December 31, 2018
For the years ended December 31, 2019 and December 31, 2018, the Trust recorded $13,376 in distributions on the subsidiary
redeemable units, which are included as interest expense in the consolidated statements of comprehensive income (see
Note 22). For the years ended December 31, 2019 and December 31, 2018, all subsidiary redeemable units that are held by the
wholly owned subsidiaries of Dream Office REIT were enrolled in the Distribution Reinvestment Plan (see Note 17).
DILP, a subsidiary of Dream Industrial REIT, is authorized to issue an unlimited number of LP B Units (subsidiary redeemable
units). The subsidiary redeemable units, together with the accompanying Special Trust Units, have economic and voting rights
equivalent in all material respects to the REIT Units. Generally, each subsidiary redeemable unit entitles the holder to a
distribution equal to distributions declared on each REIT Unit. Subsidiary redeemable units may be surrendered or indirectly
exchanged for REIT Units on a one-for-one basis at the option of the holder, generally at any time, subject to certain restrictions.
Special Trust Units are issued in connection with subsidiary redeemable units. The Special Trust Units are not transferable
separately from the subsidiary redeemable units to which they relate and will be automatically redeemed for a nominal amount
and cancelled on surrender or exchange of such subsidiary redeemable units. Each Special Trust Unit entitles the holder to the
number of votes at any meeting of unitholders that is equal to the number of REIT Units that may be obtained on the surrender
or exchange of the subsidiary redeemable units to which they relate. As at December 31, 2019 and December 31, 2018,
18,551,855 Special Trust Units were issued and outstanding.
Note 13
DEFERRED UNIT INCENTIVE PLAN
The DUIP provides for the grant of deferred trust units to trustees, officers and employees as well as affiliates and their service
providers, including the asset manager. Deferred trust units are granted at the discretion of the Board of Trustees and earn
income deferred trust units based on the payment of distributions. Once granted, each deferred trust unit and the related
distribution of income deferred trust units vest immediately for trustees, and evenly over a five-year period and three-year
period on the anniversary date of the grant for officers and the remaining participants, respectively. Subject to an election option
available for certain participants to postpone receipt of REIT Units, such deferred trust units will be issued immediately on
vesting. As at December 31, 2019 and December 31, 2018, up to a maximum of 2.4 million deferred trust units are issuable
under the DUIP.
The movement in DUIP balance was as follows:
Balance at beginning of year
Compensation expense
REIT Units issued for vested deferred trust units
Remeasurement of carrying value of deferred trust units
Cash settlement of deferred trust units
Balance at end of year
Note
21
23
Dream Industrial REIT 2019 Annual Report | 78
December 31, December 31,
2018
5,278
2,181
(1,680 )
829
—
6,608
2019
6,608 $
2,156
(1,563 )
3,140
(91 )
10,250 $
$
$
A continuity of the DUIP units outstanding is as follows:
Outstanding and payable at beginning of year
Granted(1)
REIT Units issued
Cancelled
REIT Units settled in cash
Outstanding and payable at end of year(2)
December 31, December 31,
2018
761,924
245,254
(178,764 )
(557 )
(42 )
827,815
2019
827,815
214,644
(131,072 )
(20,169 )
(8,173 )
883,045
(1) Includes 51,369 income deferred trust units granted during the year ended December 31, 2019 (December 31, 2018 – 54,913 income deferred trust units).
(2) Includes 491,176 vested but not issued deferred trust units as at December 31, 2019 (December 31, 2018 – 378,668).
For the year ended December 31, 2019, 163,275 deferred trust units were granted to trustees, officers and employees with the
grant price ranging from $10.92 to $13.37 per unit. Of the units granted, 119,225 deferred trust units relate to trustees and
officers.
For the year ended December 31, 2018, 190,341 deferred trust units were granted to trustees, officers and employees with the
grant price ranging from $9.12 to $10.75 per unit. Of the units granted, 153,792 deferred trust units relate to trustees and
officers.
Note 14
INCOME TAXES
The Trust is subject to both corporate income taxes in Canada and the U.S. in one of its respective wholly owned Canadian and
U.S. subsidiaries.
Deferred tax assets mainly arise from losses carried forward in a taxable Canadian and U.S. subsidiary, and is recognized only to
the extent that it is realizable. Deferred tax liabilities arise from the temporary differences between the carrying value and the
tax basis of the net assets of the U.S. subsidiaries.
The tax effects of the temporary differences that give rise to the recognition of deferred tax assets and liabilities are presented
below:
Deferred tax assets
Income tax loss carry-forwards
Financial instruments
Deferred tax liabilities
Investment properties
Deferred tax liabilities, net
December 31,
2019
December 31,
2018
$
$
5,104 $
34
(14,649 )
(9,511 ) $
2,831
42
(4,139 )
(1,266 )
Dream Industrial REIT 2019 Annual Report | 79
The following table reconciles the expected income taxes based upon the 2019 and 2018 statutory rates and the income tax
expense recognized during the years ended December 31, 2019 and December 31, 2018:
Income before income taxes (continuing and discontinued operations)
Less: Income distributed to unitholders
Income subject to taxation in subsidiary corporations
Tax calculated at the Canadian statutory tax rate of 29.5% (2018 – 30.0%) and U.S. statutory rate of 25.7%
$
(2018 – 24.8%)
Increase (decrease) resulting from:
Capital losses not recognized
Non-deductible expenses
Non-taxable portion of capital gains
Other items
Deferred and current income taxes expense, net(1)
$
(1) At December 31, 2019, current income taxes recovery was $18 (December 31, 2018 – $120).
Year ended December 31,
2019
2018
158,764
187,890
(155,087 )
(151,172 )
7,592
32,803
$
8,340
328
17
(1 )
(226 )
8,458
$
2,065
—
144
(722 )
(251 )
1,236
Note 15
OTHER NON-CURRENT LIABILITIES
Tenant security deposits
Fair value of interest rate swaps
Total
Note 16
AMOUNTS PAYABLE AND ACCRUED LIABILITIES
Trade payables and accrued liabilities
Accrued interest
Rent received in advance
Distributions payable
Total
Note 17
EQUITY
Note
Unitholders’ equity
Retained earnings
Accumulated other comprehensive income (loss)
Total equity
19
Note
30
Note
18
December 31, December 31,
2018
13,552
461
14,013
2019
13,572 $
895
14,467 $
$
$
December 31, December 31,
2018
21,171
3,746
4,733
5,370
35,020
2019
26,182 $
3,610
3,082
7,878
40,752 $
$
$
Number of REIT Units
134,801,881 $
December 31, 2019
Amount
1,372,564
187,443
(435 )
1,559,572
—
—
Number of REIT Units
December 31, 2018
Amount
92,062,659 $ 887,757
90,621
10,947
92,062,659 $ 989,325
—
—
134,801,881 $
Dream Industrial REIT 2019 Annual Report | 80
Dream Industrial REIT Units
Dream Industrial REIT is authorized to issue an unlimited number of REIT Units and an unlimited number of Special Trust Units.
The Special Trust Units may be issued only to holders of subsidiary redeemable units.
REIT Units represent an undivided beneficial interest in Dream Industrial REIT and in distributions made by Dream Industrial
REIT. No REIT Unit has preference or priority over any other. Each REIT Unit entitles the holder to one vote at all meetings of
unitholders.
Public offerings and private placement of REIT Units
The following table summarizes the public offerings of REIT Units issued for the year ended December 31, 2019. Total costs
related to the offerings were charged directly to unitholders’ equity.
Date of public offering
February 13, 2019(1)
April 25, 2019(2)
December 11, 2019(3)
Total
Number of REIT Units
Unit price
Gross proceeds
13,800,000 $
12,477,500
12,834,000
39,111,500
10.45 $
11.55
13.45
$
144,210 $
144,115
172,617
460,942 $
Issue costs
6,408
6,405
7,565
20,378
(1) Includes 1,800,000 REIT Units issued pursuant to the exercise of the over-allotment option granted to the underwriters.
(2) Includes 1,627,500 REIT Units issued pursuant to the exercise of the over-allotment option granted to the underwriters.
(3) Includes 1,674,000 REIT Units issued pursuant to the exercise of the over-allotment option granted to the underwriters.
On December 19, 2019, the Trust completed a private placement to sell an aggregate of 325,000 REIT Units to Michael J. Cooper,
Trustee, and Brian Pauls, Chief Executive Officer and Trustee, at a price of $13.45 per REIT Unit, for gross proceeds of $4,371.
The following table summarizes the public offering of REIT Units issued for the year ended December 31, 2018. Total costs
related to the offerings were charged directly to unitholders’ equity.
Date of public offering
June 29, 2018(1)
(1) Includes 1,815,000 REIT Units issued pursuant to the exercise of the over-allotment option granted to the underwriters.
13,915,000 $
10.35 $
Number of REIT Units
Unit price
Gross proceeds
144,020 $
Issue costs
6,388
Short form base shelf prospectus
On October 15, 2019, the Trust filed and obtained a receipt for a final short form base shelf prospectus dated October 11, 2019,
which is valid for a 25-month period, during which time the Trust may, from time to time, offer and issue REIT Units, subscription
receipts and debt securities, or any combination thereof, having an aggregate offering price of up to $2,000,000. As at
December 31, 2019, $172,617 of REIT Units have been issued under the current base shelf prospectus. On February 12, 2020,
the Trust issued a further $230,125 of REIT Units under the current base shelf prospectus, bringing the total to $402,742. The
issuance is pursuant to the current base shelf prospectus as supplemented by the prospectus supplement.
Distribution Reinvestment Plan and Unit Purchase Plan
The Distribution Reinvestment Plan (“DRIP”) allows holders of REIT Units or subsidiary redeemable units, other than unitholders
who are resident of or present in the U.S., to elect to have all cash distributions from Dream Industrial REIT reinvested in
additional units. Unitholders who participate in the DRIP receive an additional distribution of units equal to 3% of each cash
distribution that is reinvested. The reinvestment price per unit is calculated by reference to a five-day weighted average closing
price of the REIT Units on the TSX preceding the relevant distribution date, which typically is on or about the 15th day of the
month following the declaration.
For the year ended December 31, 2019, 3,170,829 REIT Units (December 31, 2018 – 2,863,035 REIT Units) were issued under
the DRIP and $38,311 (December 31, 2018 – $28,292) was recorded as distributions in the consolidated statements of changes
in equity. Subsequent to the year-end and prior to when the consolidated financial statements were authorized for issuance,
we issued an additional 547,531 REIT Units under the DRIP. This includes DRIP on REIT Units and DRIP on subsidiary redeemable
units.
The Unit Purchase Plan feature of the DRIP facilitates the purchase of additional REIT Units by existing unitholders. Participation
in the Unit Purchase Plan is optional and subject to certain limitations on the maximum number of additional REIT Units that
may be acquired. The price per unit is calculated in the same manner as the DRIP. No commissions, service charges or brokerage
fees are payable by participants in connection with either the reinvestment or purchase features of the DRIP. For the year ended
December 31, 2019, 821 REIT Units (December 31, 2018 – 1,017 REIT Units) were issued under the Unit Purchase Plan for
proceeds of $10 (December 31, 2018 – $10).
Dream Industrial REIT 2019 Annual Report | 81
Note 18
DISTRIBUTIONS
Dream Industrial REIT’s Declaration of Trust, as amended and restated, provides the Board of Trustees with the discretion to
determine the percentage payout of income that would be in the best interest of the Trust. Monthly distribution payments to
unitholders are payable on or about the 15th day of the following month.
The Trust declared distributions of $0.70 in each of the years ended December 31, 2019 and December 31, 2018.
The following table summarizes distributions paid and payable for the years ended December 31, 2019 and December 31, 2018:
Paid in cash
Paid by way of reinvestment in REIT Units(1)
Less: Payable at December 31, 2018/December 31, 2017
Plus: Payable at December 31, 2019/December 31, 2018
Total distributions paid and payable
(1) Excludes REIT Units issued under the DRIP for LP B Units.
Year ended December 31,
2019
2018
55,167 $
43,946
24,935
14,916
(5,370 )
(4,381 )
7,878
5,370
82,610 $
59,851
$
$
On December 19, 2019, the Trust announced a cash distribution of $0.05833 per REIT Unit for the month of December 2019.
The December 2019 distribution will be payable on January 15, 2020 to unitholders on record as at December 31, 2019. The
December 2019 distribution was settled in cash totalling $5,267 and $2,611 distributions were reinvested in additional 200,004
REIT Units (including 3% bonus distributions on Units reinvested pursuant to DRIP).
On January 22, 2020, the Trust announced a cash distribution of $0.05833 per REIT Unit for the month of January 2020. The
January 2020 distribution will be payable on February 14, 2020 to unitholders on record as at January 31, 2020. The January
2020 distribution was settled in cash totalling $5,353 and $2,526 distributions were reinvested in additional 184,943 REIT Units
(including 3% bonus distributions on Units reinvested pursuant to DRIP).
Note 19
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
Opening
balance
January 1
Net change
during
the year
Closing
balance
December 31
Opening
balance
January 1
2019
Year ended December 31,
2018
Closing
balance
December 31
Net change
during
the year
Unrealized gain (loss) on foreign currency
translation, net of taxes
$
10,911
$
(11,346 ) $
(435 ) $
(1,079 ) $
11,990
$
10,911
Unrealized gain (loss) on effective interest
rate hedge, net of taxes
Accumulated other comprehensive
36
(36 )
—
(56 )
92
36
income (loss)
$
10,947
$
(11,382 ) $
(435 ) $
(1,135 ) $
12,082
$
10,947
Note 20
INVESTMENT PROPERTIES REVENUE
Rental income
Recoveries revenue
Total
Year ended December 31,
2018
132,827
27,616
160,443
2019
162,278 $
33,053
195,331 $
$
$
Dream Industrial REIT 2019 Annual Report | 82
Note 21
GENERAL AND ADMINISTRATIVE EXPENSES
Asset management fee
Deferred compensation expenses
Professional service fees, public reporting, overhead-related costs and other
General and administrative expenses
Note
27
13
Year ended December 31,
2018
(3,909 )
(2,181 )
(4,005 )
(10,095 )
2019
(4,775 ) $
(2,156 )
(5,129 )
(12,060 ) $
$
$
Note 22
INTEREST
Interest on debt
Interest on debt incurred and charged to the consolidated statements of comprehensive income is recorded as follows:
Interest expense incurred, at contractual rate
Amortization of financing costs
Amortization of fair value adjustments
Interest expense on debt
Add (deduct):
Amortization of financing costs
Amortization of fair value adjustments
Change in accrued interest
Cash interest paid on debt associated with discontinued operations
Cash interest paid on debt
Year ended December 31,
2019
2018
(34,150 ) $
(32,957 )
(1,441 )
(1,658 )
290
635
(34,956 )
(34,325 )
1,441
(635 )
358
(1,389 )
(35,181 ) $
1,658
(290 )
357
(2,614 )
(35,214 )
$
$
Certain debt assumed in connection with acquisitions has been adjusted to fair value using the estimated market interest rate
at the time of the acquisition (“fair value adjustment”). This fair value adjustment is amortized to interest expense over the
expected remaining term of the debt using the effective interest rate method. Non-cash adjustments to interest expense are
recorded as part of depreciation and amortization under cash generated from (utilized in) operating activities within the
consolidated statements of cash flows.
Interest on subsidiary redeemable units
Interest payments incurred and charged to the consolidated statements of comprehensive income consisting of distributions to
holders of subsidiary redeemable units are recorded as follows:
Paid in cash
Paid by way of reinvestment in REIT Units
Plus: Interest payable at December 31, 2018/December 31, 2017
Less: Interest payable at December 31, 2019/December 31, 2018
Interest on subsidiary redeemable units
$
Year ended December 31,
2019
2018
—
—
(13,376 )
(13,376 )
1,114
1,114
(1,114 )
(1,114 )
(13,376 ) $
(13,376 )
$
$
The interest payable at December 31, 2019 was satisfied through the issuance of 83,367 REIT Units on January 15, 2020. The
interest payable at January 31, 2020 was satisfied through the issuance of 79,217 REIT Units on February 18, 2020.
Dream Industrial REIT 2019 Annual Report | 83
Note 23
FAIR VALUE ADJUSTMENTS TO FINANCIAL INSTRUMENTS
Remeasurement of carrying value of subsidiary redeemable units
Remeasurement of carrying value of DUIP
Fair value adjustment on interest rate swaps
Fair value adjustment on conversion feature of convertible debentures
Total
Note 24
NET LOSSES ON TRANSACTIONS AND OTHER ACTIVITIES
Internal leasing costs
Foreign exchange loss
Costs on sale of investment properties(1)
Debt settlement costs(2)
Transaction cost recovery (other)
Total
Note
12
13
$
$
$
$
$
Year ended December 31,
2019
2018
(67,158 )
(13,357 )
(3,140 )
(829 )
(519 )
(629 )
—
(2,305 )
(70,817 )
(17,120 )
$
$
Year ended December 31,
2019
(2,321 )
(1,572 )
(438 )
(372 )
(226 )
(4,929 )
2018
(2,613 )
—
—
(1,932 )
151
(4,394 )
$
(1) Costs on sale of investment properties consist of transaction costs, commissions and other expenses incurred in relation to the disposal of investment
properties.
(2) 2019 debt settlement costs relate to the discharge of mortgages on sold properties. 2018 debt settlement costs relate to the write-off of unamortized
financing costs and fair value adjustments associated with the early repayment of the 5.25% convertible debentures.
Note 25
SUPPLEMENTARY CASH FLOW INFORMATION
The components of depreciation and amortization under operating activities include:
Depreciation of property and equipment
Amortization of lease incentives
Amortization of financing costs
Amortization of fair value adjustments on assumed debt
Total depreciation and amortization
The components of other adjustments under operating activities include:
Change in straight-line rent
Deferred unit compensation expense
Non-cash interest on subsidiary redeemable units
Deferred income tax expense
Foreign exchange loss
Costs on sale of investment properties
Debt settlement costs
Other (transaction cost recovery)
Total other adjustments
Note
5, 10
10, 11
10, 11
Note
5
13
22
14
24
10, 24
10, 24
24
$
$
$
$
Dream Industrial REIT 2019 Annual Report | 84
$
Year ended December 31,
2019
2018
55
59
1,641
1,426
1,553
1,821
(692 )
(307 )
2,999
2,557
$
$
Year ended December 31,
2019
2018
(1,233 )
(968 )
2,156
2,181
13,376
13,376
1,356
8,476
—
1,572
3,196
—
1,932
1,336
226
(151 )
17,726
29,105
$
The components of the changes in non-cash working capital under operating activities include:
Increase in amounts receivable
Decrease (increase) in prepaid expenses and other assets
Increase in other non-current assets
Increase (decrease) in amounts payable and accrued liabilities
Increase (decrease) in tenant security deposits and other
Change in non-cash working capital
$
$
$
Year ended December 31,
2019
2018
(3,211 )
(1,087 )
2,869
(272 )
(105 )
(84 )
502
(5,118 )
779
(424 )
(5,989 )
(162 )
$
Note 26
SEGMENTED INFORMATION
For the years ended December 31, 2019 and December 31, 2018, the Trust’s reportable operating segments of its investment
properties and results of operations were segmented into geographic components, namely Western Canada, Ontario, Québec,
and the U.S.
The chief operating decision-maker, determined to be the Chief Executive Officer (“CEO”) of the Trust, considers the
performance of assets held for sale and disposed properties separately from the investment properties in the geographic
segments, and discontinued operations separately from the segmented income in the geographic segments.
On June 30, 2019, the Trust classified the Eastern Canada portfolio as held for sale and the associated results of operations as a
discontinued operation (see Note 10). On July 31, 2019, the Trust completed the sale of the Eastern Canada portfolio. As such,
the region is no longer allocated to the geographic segments.
The Trust did not allocate interest expense to the geographic segments since financing is viewed as a corporate function. The
decision as to where to incur the debt is largely based on minimizing the cost of debt and is not specifically related to the
segments. Similarly, other income, other expenses, fair value adjustments to financial instruments, net losses on transactions
and other activities (excluding internal leasing costs), and income taxes were not allocated to the segments.
Year ended December 31, 2019
Investment properties revenue
Investment properties operating expenses
Net rental income (segmented income)
Fair value adjustments on investment properties
Net losses on transactions and other activities(2)
Western
Canada
Ontario
Québec
U.S.
Segment
total
$ 65,800 $ 51,939 $ 34,389 $ 42,981 $ 195,109 $
(56,085 )
139,024
180,846
(2,321 )
(15,236 )
(21,971 )
43,829
36,703
(15,746 ) 144,547
(606 )
(1,174 )
(10,124 )
32,857
28,162
—
(8,754 )
25,635
23,883
(541 )
Other(1)
Total
222 $ 195,331
(220 )
(56,305 )
2
139,026
(358 ) 180,488
(4,929 )
(2,608 )
(1) Other includes properties sold and properties originally held for sale and subsequently sold during the year that were not presented separately as
discontinued operations. Furthermore, other includes items within net losses on transactions and other activities that were not segmented.
(2) Net losses on transactions and other activities allocated to the geographic segments represent internal leasing costs.
Year ended December 31, 2018
Investment properties revenue
Investment properties operating expenses
Net rental income (segmented income)
Fair value adjustments on investment properties
Net losses on transactions and other activities(2)
Western
Canada
Ontario
Québec
U.S.
Segment
total
$ 65,102 $ 46,965 $ 30,599 $ 17,777 $ 160,443 $
(46,208 )
114,235
108,308
(2,613 )
(13,616 )
33,349
85,837
(692 )
(21,754 )
43,348
(19,918 )
(1,402 )
(8,123 )
22,476
41,879
(519 )
(2,715 )
15,062
510
—
(1) Other includes items within net losses on transactions and other activities that were not segmented.
(2) Net losses on transactions and other activities allocated to the geographic segments represent internal leasing costs.
Dream Industrial REIT 2019 Annual Report | 85
Other(1)
Total
— $ 160,443
—
(46,208 )
—
114,235
— 108,308
(4,394 )
(1,781 )
Investment properties
Year ended December 31, 2019
Investment properties
Capital expenditures(2)
Western
Canada
621,946 $
10,451
$
Ontario
817,061 $
6,058
Québec
414,085 $
3,669
U.S.
575,572 $
699
Other(1)
Total
— $ 2,428,664
24,198
3,321
(1) Includes capital expenditures associated with the Eastern Canada region prior to region being reclassified to assets held for sale at June 30, 2019.
(2) Includes building improvements and initial direct leasing costs and lease incentives.
Year ended December 31, 2018
Investment properties
Capital expenditures(1)
Western
Canada
627,354 $
8,996
$
Ontario
610,470 $
10,514
Québec
353,351 $
3,601
Eastern
Canada
253,687 $
4,426
(1) Includes building improvements and initial direct leasing costs and lease incentives.
U.S.
Total
293,549 $ 2,138,411
27,885
348
Note 27
RELATED PARTY TRANSACTIONS AND ARRANGEMENTS
From time to time, Dream Industrial REIT and its subsidiaries enter into transactions with related parties, generally conducted
on a cost-recovery basis or under normal commercial terms.
Dream Asset Management Corporation (“DAM”)
Dream Industrial REIT has an asset management agreement (the “Asset Management Agreement” or the “AMA”) with DAM, a
subsidiary of Dream Unlimited Corp., pursuant to which DAM provides certain asset management services to Dream Industrial
REIT and its subsidiaries. The AMA provides the Trust and DAM the opportunity to agree on additional services to be provided
to the Trust for which DAM is to be reimbursed on a cost recovery basis.
The AMA provides for a range of asset management services for the following fees:
• asset management fee calculated and payable on a monthly basis, equal to 0.25% of the gross asset value of properties;
• acquisition fee equal to: (a) 1.0% of the purchase price of a property on the first $100,000 of properties acquired in each
fiscal year; (b) 0.75% of the purchase price of a property on the next $100,000 of properties acquired in each fiscal year;
and (c) 0.50% of the purchase price of a property in excess of $200,000 of properties acquired in each fiscal year;
•
•
financing fee equal to the actual expenses incurred by DAM in supplying services relating to financing transactions;
incentive fee equal to 15% of the Trust’s adjusted funds from operations (“AFFO”) per Unit as defined in the AMA, which
includes gains on the disposition of any properties in the year, in excess of the hurdle amount initially set at 80 cents per
Unit and which increases annually by 50% of the increase in the consumer price index (“Hurdle Amount”); and
• capital expenditure fee equal to 5% of all hard construction costs incurred on each capital project with costs in excess of
$1,000, excluding work done on behalf of tenants or any maintenance capital expenditures.
The AMA has an initial term ending October 3, 2022 and is automatically renewed for further five-year terms unless and until
terminated in accordance with its terms. The AMA may be terminated by DAM at any time after the initial term. Other than in
respect of termination resulting from certain events of insolvency of DAM, on termination of the AMA, all accrued fees under
the AMA, including the incentive fee, are payable to DAM. In such circumstances or if the Trust is acquired, the incentive fee is
calculated as if all the Trust’s properties were sold on the applicable date.
Disposition gains in the AFFO calculation used for determining the incentive fee are based on the fair value of the Trust’s
investment properties, at the applicable date, relative to their historic purchase price. As at December 31, 2019, the historic
purchase price for the Trust’s investment properties was $2,009,428 (December 31, 2018 – $1,938,650).
For the most recently completed fiscal year ended October 3, 2019 for the AMA, the Hurdle Amount for the purpose of
calculating the incentive fee was $0.86 per Unit. As at December 31, 2019 and December 31, 2018, no incentive fees have been
paid or payable by the Trust to DAM.
The amount of the incentive fee payable by the Trust on any date will be contingent upon various factors, including, but not
limited to, changes in the Trust’s AFFO as defined in the AMA, movements in the fair value of investment properties, acquisitions
and dispositions, future foreign exchange rates, and changes in the total number of outstanding Units of the Trust.
Dream Industrial REIT 2019 Annual Report | 86
The Trust and DAM are party to an amended Shared Services and Cost Sharing Agreement as of January 1, 2016. According to
the terms of the amended arrangement, DAM will continue to provide administrative and support services on an as needed
basis and will be reimbursed on a cost recovery basis for any expenses incurred. The Trust will continue to reimburse DAM for
any shared costs allocated in each calendar year. This amended agreement provides for the automatic reappointment of DAM
for additional one-year terms commencing on January 1 unless and until terminated in accordance with its terms or by mutual
agreement of the parties.
Dream Industrial Management LP (“DIMLP”), a wholly owned subsidiary of DILP, has a Property Management Agreement with
a subsidiary of DAM for DIMLP to manage one property on behalf of DAM. On February 1, 2019, the Property Management
Agreement was terminated as the property is no longer owned by DAM.
On November 26, 2019, the Trust formed a company and entered into an operating agreement with a subsidiary of each of DAM
and PAULS Corp, LLC, for the purpose of acquiring land to develop an industrial property in Las Vegas, Nevada. The Trust holds
an 80% interest in the company and each of the subsidiaries of DAM and PAULS Corp, LLC hold 10% each (see Note 8).
Dream Hard Asset Alternatives Trust (“DHAAT”)
DILP had a co-ownership agreement to jointly own six properties at 50% ownership interest with a subsidiary of DHAAT.
Furthermore, DIMLP had a Property Management Agreement to manage the co-owned properties. On August 30, 2019, the
Trust completed the acquisition of DHAAT’s 50% interest in six investment properties in Regina, Saskatchewan (see Note 6).
Concurrently, the co-ownership agreement and Property Management Agreement to manage the co-owned properties were
terminated.
DIMLP had lease agreements with a subsidiary of DHAAT to lease roof-top space. On October 29, 2019, the lease agreements
with DHAAT were assigned to a third party.
Dream Office Real Estate Investment Trust (“Dream Office REIT”)
Dream Industrial REIT, DILP, DIMLP, Dream Industrial Management Corp. and Dream Office Management Corp. (“DOMC”), a
subsidiary of Dream Office REIT, are parties to an administrative services agreement (the “Services Agreement”) where DOMC
provides certain services to Dream Industrial REIT on a cost recovery basis. The Services Agreement is automatically renewed
on October 4th of every year for additional one-year terms unless terminated by any party.
As at December 31, 2019, Dream Office REIT indirectly owns, through its subsidiaries, 8,792,170 REIT Units (December 31,
2018 – 7,200,736) and 18,551,855 LP B Units (December 31, 2018 – 18,551,855), representing approximately 17.8% ownership
in the Trust (December 31, 2018 – 23.3%). Subsequent to the completion of the public offering of 16,859,000 REIT Units by the
Trust on February 12, 2020 (see Note 33), Dream Office REIT’s ownership decreased to 16.1%.
PAULS Corp, LLC (“PAULS Corp”)
Effective January 1, 2018, Brian Pauls was appointed as the Trust’s CEO and nominated to the Board of Trustees on May 17,
2018. Mr. Pauls is also a senior member of the management team at PAULS Corp, a Denver-based real estate firm.
DAM, our asset manager, has engaged an affiliate of PAULS Corp to assist the Trust in sourcing and completing acquisitions in
the U.S. DAM pays a portion of the acquisition fee it receives from the Trust for each successful acquisition. Through its
relationships in the U.S., PAULS Corp assisted the Trust with its U.S. acquisitions described in Note 6 and Note 8.
Dream Industrial US Holdings Inc. has a Property Management Agreement with an affiliate of PAULS Corp to manage several of
the Trust’s U.S. properties and to provide portfolio management services.
As previously mentioned, a subsidiary of PAULS Corp holds a 10% interest in a company with the Trust and a subsidiary of DAM
for the purpose of acquiring land to develop an industrial property in Las Vegas, Nevada. The subsidiary of PAULS Corp is
responsible for managing the day-to-day operations of the development project.
Board of Trustees and officers
On December 19, 2019, the Trust completed a private placement to sell an aggregate of 325,000 REIT Units to Michael J. Cooper,
Trustee, and Brian Pauls, Chief Executive Officer and Trustee, at a price of $13.45 per REIT Unit, for gross proceeds of $4,371
(see Note 17).
The Trust has a Deferred Unit Incentive Plan and during the year issued deferred trust units to trustees and officers (see
Note 13).
Dream Industrial REIT 2019 Annual Report | 87
Related party transactions
Fees and cost reimbursements with related parties were as follows:
Agreements with DAM
The following table summarizes our fees paid to or received from DAM, including both continuing and discontinued operations
for the years ended December 31, 2019 and December 31, 2018:
Incurred under the AMA:
Asset management fee (included in general and administrative expenses)
Acquisition fee (included in investment properties)
Expense reimbursements related to financing arrangements
Total costs incurred under the Asset Management Agreement
Total costs reimbursed under the Shared Services and Cost Sharing Agreement
Total property management fees earned under the Property Management Agreement
Year ended December 31,
2019
2018
$
$
$
$
(5,190 ) $
(2,662 )
(380 )
(8,232 ) $
(716 ) $
7 $
(4,621 )
(1,556 )
(369 )
(6,546 )
(657 )
87
Agreements with DHAAT
The following table summarizes our fees received from DHAAT for the years ended December 31, 2019 and December 31, 2018:
Total revenue under lease agreements and the Property Management Agreement
$
Year ended December 31,
2019
119 $
2018
151
Agreement and transactions with Dream Office REIT
The following table summarizes the costs reimbursed to Dream Office REIT for the years ended December 31, 2019 and
December 31, 2018:
Total costs reimbursed under the Services Agreement
Year ended December 31,
2019
2018
(4,037 ) $
(3,304 )
$
The following table summarizes our distributions paid and payable to subsidiaries of Dream Office REIT for the years ended
December 31, 2019 and December 31, 2018:
Distributions paid and payable to Dream Office REIT on subsidiary redeemable units
Distributions paid and payable to Dream Office REIT on REIT Units
Total distributions paid and payable to Dream Office REIT
Year ended December 31,
2019
2018
(13,376 ) $
(13,376 )
(5,846 )
(4,538 )
(19,222 ) $
(17,914 )
$
$
Agreements with PAULS Corp
The following table summarizes our fees paid and costs reimbursed to an affiliate of PAULS Corp for the years ended
December 31, 2019 and December 31, 2018:
Property management
Portfolio management
Leasing costs
Financing costs
Total costs incurred under the Property Management Agreement
Year ended December 31,
2019
2018
(733 ) $
(336 )
(439 )
(122 )
—
(133 )
(85 )
(49 )
(1,390 ) $
(507 )
$
$
Dream Industrial REIT 2019 Annual Report | 88
Amounts due from (to) related parties
Amounts due from related parties
Dream Office REIT
Amounts due to related parties
DAM
Dream Office REIT
PAULS Corp
Distributions and interest payable to Dream Office REIT
Interest payable on subsidiary redeemable units to Dream Office REIT(1)
Distributions payable to Dream Office REIT(2)
December 31,
2019
2,275
$
December 31,
2018
855
$
$
December 31,
2019
(935 )
(302 )
(100 )
$
December 31,
2018
(606 )
(387 )
(54 )
December 31,
2019
(1,114 ) $
(529 )
$
December 31,
2018
(1,114 )
(421 )
(1) Interest payable on subsidiary redeemable units is in relation to the 18,551,855 subsidiary redeemable units held by Dream Office REIT as at December 31,
2019 and December 31, 2018.
(2) Distributions payable is in relation to the 8,792,170 REIT Units held by Dream Office REIT as at December 31, 2019 (December 31, 2018 – 7,200,736 REIT
Units).
Note 28
COMMITMENTS AND CONTINGENCIES
Dream Industrial REIT and its operating subsidiaries are contingently liable under guarantees that are issued in the normal course
of business and with respect to litigation and claims that may arise from time to time. In the opinion of management, any liability
that may arise from such contingencies would not have a material adverse effect on our consolidated financial statements.
Note 29
CAPITAL MANAGEMENT
The Trust’s capital consists of debt, including mortgages, revolving credit facility, subsidiary redeemable units and unitholders’
equity. The Trust’s primary objectives in managing capital are to ensure adequate operating funds are available to maintain
consistent and sustainable unitholder distributions, and to fund leasing costs and capital expenditure requirements.
Various debt ratios and cash flow metrics are used to ensure capital adequacy and to monitor capital requirements. The primary
ratios used for assessing capital management are the interest coverage ratio and net debt-to-gross carrying value. Other
significant indicators include assets not pledged, weighted average interest rate, average term to maturity of debt and variable
rate debt as a percentage of total debt. These indicators assist the Trust in assessing whether the debt level maintained is
sufficient to provide adequate cash flows for leasing costs and capital expenditures, and for evaluating the need to raise funds
for further expansion. Various mortgages have debt covenant requirements that are monitored by the Trust to ensure there are
no defaults. These covenants include loan-to-value ratios, cash flow coverage ratios, interest coverage ratios and debt service
coverage ratios. These covenants are measured at the subsidiary limited partnership level, and all have been complied with as
at December 31, 2019 and December 31, 2018, except for a $6,830 mortgage related to a property in Edmonton, where the
debt service coverage ratio was not met. During the year, the lender issued a forbearance letter for the covenant breach and
confirmed that the mortgage is in good standing. For the years ended December 31, 2019 and December 31, 2018, there were
no events of default on any of the Trust’s obligations under its revolving credit facility or mortgage loans.
The Trust’s equity consists of REIT Units, in which the carrying value is impacted by earnings and unitholder distributions. Amounts
retained in excess of the distributions are used to fund leasing costs, capital expenditures and working capital requirements.
Management monitors distributions to ensure adequate resources are available by comparing total distributions (including
distributions on subsidiary redeemable units), a non-IFRS measure, to cash generated from (utilized in) operating activities.
Dream Industrial REIT 2019 Annual Report | 89
Note 30
OTHER FINANCIAL INSTRUMENTS
Interest rate swaps
The following tables summarize the details of the interest rate swaps that are outstanding as at December 31, 2019 and
December 31, 2018:
Fair value assets and accumulated other comprehensive income (“AOCI”)
Transaction date
August 26, 2015
July 30, 2019
Total
Mortgage principal
amount (notional)
43,760
50,000
93,760
$
$
Fixed
interest rate
Maturity date
Financial instrument measurement
2.93 % September 1, 2022 Fair value through profit or loss $
3.15 %
August 1, 2029 Fair value through profit or loss
$
Fair value assets
(see Note 8)
560
862
1,422
As at December 31, 2019
Transaction date
Mortgage principal
amount (notional)
Fixed
interest rate
Maturity date
February 24, 2014
$
45,173
3.31 %
March 1, 2019
As at December 31, 2018
Financial instrument measurement
Hedge through other
comprehensive income $
Fair value AOCI
(see Note 19)
36
As at December 31, 2018
Transaction date
August 26, 2015
August 30, 2017
Total
Fair value liabilities
Transaction date
August 30, 2017
January 17, 2018
Total
Transaction date
January 17, 2018
Total
$
$
$
$
$
$
Mortgage principal
amount (notional)
45,200
43,553
88,753
Fixed
interest rate
Maturity date
Financial instrument measurement
2.93 % September 1, 2022 Fair value through profit or loss $
August 30, 2024 Fair value through profit or loss
3.44 %
$
Fair value assets
(see Note 8)
1,111
396
1,507
As at December 31, 2019
Mortgage principal
amount (notional)
42,349
44,839
87,188
Fixed
interest rate
3.44 %
3.73 %
Maturity date
Financial instrument measurement
August 30, 2024 Fair value through profit or loss $
April 3, 2023 Fair value through profit or loss
$
Fair value liability
(see Note 15)
(233 )
(662 )
(895 )
Mortgage principal
amount (notional)
46,036
46,036
Fixed
interest rate
3.73 %
Maturity date Financial instrument measurement
April 3, 2023 Fair value through profit or loss $
$
As at December 31, 2018
Fair value liability
(see Note 15)
(461 )
(461 )
Dream Industrial REIT 2019 Annual Report | 90
Note 31
FINANCIAL INSTRUMENTS – RISK MANAGEMENT
IFRS 7, “Financial Instruments: Disclosures” (“IFRS 7”), places emphasis on disclosures about the nature and extent of risks
arising from financial instruments and how the Trust manages those risks, including market, credit and liquidity risks.
Market risk
Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market
prices. Market risk consists of interest rate risk, currency risk and other market price risk. The Trust has exposure to interest rate
risk primarily as a result of its fixed rate debt due to the expected requirement to refinance such debts in the year of maturity. To a
lesser extent, the Trust is exposed to variable rate debt on its drawings on the revolving credit facility. The Trust is exposed to the
variability in market interest rates and credit spreads on maturing debt to be renewed and the variability of interest rates on its
variable rate debt. The Trust had no variable rate debt as at December 31, 2019 and December 31, 2018. In order to manage
exposure to interest rate risk, the Trust endeavours to maintain an appropriate mix of fixed and variable rate debt, manage
maturities of fixed rate debt, and match the nature of the debt with the cash flow characteristics of the underlying asset.
The following interest rate sensitivity table outlines the potential impact of a 1% change in the interest rate on variable rate
financial assets and fixed rate debt due to mature in 2020.
Interest rate risk
Financial assets
Cash and cash equivalents(1)
Financial liabilities
Debt due to mature in 2020(2)
Carrying amount
Income
-1%
Equity
Income
+1%
Equity
$
441,537 $
(4,415 ) $
(4,415 ) $
4,415 $
4,415
34,758
348
348
(348 )
(348 )
(1) Cash and cash equivalents are short-term investments with an original maturity of three months or less, and exclude cash subject to restrictions that prevent
s prime rate less 1.85% to 2.00%. Cash and cash equivalents
the Trust
as at December 31, 2019 are short term in nature and may not be representative of the balance during the year.
s use for current purposes. These balances generally receive interest income at the bank
(2) Excludes scheduled principal repayments on non-maturing debt.
ʼ
ʼ
The Trust is exposed to foreign exchange risk as it relates to its U.S. investments due to fluctuations in the exchange rate between
the Canadian and U.S. dollars. Changes in the exchange rate may result in a reduction in other comprehensive income. For the
year ended December 31, 2019, a $0.05 change in the value of the U.S. dollar relative to the Canadian dollar would result in a
$15,381 change to comprehensive income. The Trust’s objective in managing foreign exchange risk is to mitigate the exposure
from fluctuations in the exchange rate by maintaining U.S.-denominated debt against its U.S. assets.
Credit risk
The Trust’s assets mainly consist of investment properties. Credit risk arises from the possibility that tenants in investment
properties may not fulfill their lease or contractual obligations. The Trust mitigates its credit risk by attracting tenants of sound
financial standing and by diversifying its mix of tenants. As at December 31, 2019 and December 31, 2018, there is no single
tenant that accounts for more than 5% of the Trust’s annual gross revenue. The Trust also monitors tenant payment patterns
and discusses potential tenant issues with property managers on a regular basis. The maximum exposure to credit risk is the
carrying value of the trade receivables disclosed in Note 9. An impairment analysis is performed at each balance sheet date
using a provision matrix to measure expected credit losses, adjusted for forward-looking factors specific to the tenant and the
economic environment. The provision is reduced for tenant security deposits held as collateral.
Cash and cash equivalents, deposits and restricted cash carry minimal credit risk as all funds are maintained with highly
reputable financial institutions. The Trust manages its credit risk on debt assumed by purchasers of investment properties by
monitoring the ongoing repayment of assumed debt by the purchasers and evaluating market conditions which would affect
the purchasers’ ability to repay assumed debt.
Dream Industrial REIT 2019 Annual Report | 91
Liquidity risk
Liquidity risk is the risk that the Trust will encounter difficulty in meeting obligations associated with the maturity of financial
obligations. As at December 31, 2019, current assets exceeded current liabilities by $349,043 (December 31, 2018 – current
liabilities exceeded current assets by $93,293). The Trust’s main sources of liquidity are its cash and cash equivalents on hand,
revolving credit facility and unencumbered assets. The Trust is able to use its revolving credit facility on short notice which
eliminates the need to hold a significant amount of cash and cash equivalents on hand. Working capital balances fluctuate
significantly from period to period depending on the timing of receipts and payments. The Trust manages maturities of the fixed
rate debts, monitors the repayment dates and maintains adequate cash and cash equivalents on hand and availability on the
revolving credit facility to ensure sufficient capital will be available to cover obligations as they become due.
Note 32
FAIR VALUE MEASUREMENTS
Quoted market prices represent a Level 1 valuation. When quoted market prices are not available, the Trust maximizes the use
of observable inputs. When all significant inputs are observable, the valuation is classified as Level 2. Valuations that require the
significant use of unobservable inputs are considered Level 3. The Trust’s policy is to recognize transfers in and transfers out of
fair value hierarchy levels as of the date of the event or change in circumstances that caused the transfer. There were no transfers
between Levels 1, 2 and 3 for the years ended December 31, 2019 and December 31, 2018.
All gains and losses recorded in fair value adjustments to financial instruments (see Note 22) are changes in unrealized gains
and losses relating to the items on the consolidated balance sheets.
The following section summarizes the fair value measurements recognized in the consolidated financial statements by class of
asset or liability and categorized by level according to the significance of the inputs used in making the measurements.
Investment properties
The Trust’s accounting policy as indicated in Note 2 is applied in determining the fair value of investment properties by using
the income approach, which is derived from one of two methods: overall cap rate method and discounted cash flow method.
As a result, these measurements are classified as Level 3 in the fair value hierarchy as summarized in the tables below.
Recurring fair value measurements
Non-financial assets
Investment properties
Recurring fair value measurements
Non-financial assets
Investment properties
Carrying value as at
December 31, 2019
Note
Level 1
Fair value as at December 31, 2019
Level 3
Level 2
5
$
2,428,664
$
— $
— $
2,428,664
Carrying value as at
December 31, 2018
Note
Level 1
Fair value as at December 31, 2018
Level 3
Level 2
5
$
2,138,411
$
— $
— $
2,138,411
Valuations of investment properties are most sensitive to changes in discount rates and cap rates. In applying the overall cap
rate method, the stabilized NOI of each property is divided by any appropriate cap rate.
In applying the discounted cash flow method, the cash flows of a specific property are projected assuming a 10-year holding
period. The estimated sale value at the end of the holding period is then calculated by dividing the projected net rental income
for year 11 by a terminal rate. These projected cash flows are then added together and discounted at a discount rate reflecting
the risks of the property being valued.
The results of both methods are evaluated by considering the range of values calculated under both methods on a property-by-
property basis. Investment properties are valued on a highest-and-best-use basis.
The critical and key assumptions in the valuation of investment properties are as follows:
Cap rate method
• Cap rates – based on actual location, size and quality of the properties and taking into account any available market data at
the valuation date.
• Stabilized NOI – normalized property operating revenues less property operating expenses.
Dream Industrial REIT 2019 Annual Report | 92
Discounted cash flow method
• Discount and terminal rates – reflecting current market assessments of the return expectations.
• Market rents – reflecting management’s best estimates with reference to recent leasing activity and external market data.
• Leasing costs – reflecting management’s best estimates with reference to recent leasing activity and external market data.
• Vacancy rates – reflecting management’s best estimates with reference to recent leasing activity and external market data.
• Capital expenditures – reflecting management’s best estimates of costs to complete development projects.
As at December 31, 2019, there were no investment properties classified as assets held for sale, and one was classified as held
for sale as at December 31, 2018.
Investment properties are valued on a highest-and-best-use basis. For all of the Trust’s investment properties, the current use
is considered the highest and best use.
Investment properties valuation process
Management is responsible for determining the fair value measurements included in the consolidated financial statements. At
the end of each reporting period, the Trust determines the fair value of investment properties by:
1) considering current contracted sales prices for properties that are available for sale;
2) obtaining appraisals from qualified external professionals on a rotational basis for select properties; and
3) using internally prepared valuations applying the income approach.
The Trust includes a valuation team that analyzes the fair value of each investment property at least once a quarter. On a
quarterly basis, the valuation team would engage independent professionally qualified valuers who hold a recognized relevant
professional qualification and have recent experience in the locations and categories of the investment properties to complete
valuations of properties on a rotational basis. Judgment is also applied in determining the extent and frequency of independent
appraisals. For properties subject to an independent valuation report, the valuation team verifies all major inputs to the
valuation and reviews the results with the independent valuers.
The valuation team directly reports the results to the Chief Financial Officer (“CFO”) and CEO for approval. Discussion of
valuation processes, key inputs, results and reasons for the fair value movements are held between the CFO, the CEO and the
valuation team at least once every quarter, in line with the Trust’s quarterly reporting.
Financial instruments
Financial instruments carried at amortized cost or accounted for as investments in associates where the carrying value does not
approximate fair value are noted below:
Financial instruments at amortized cost
Mortgages
Revolving credit facility
Financial instruments at amortized cost
Mortgages
Revolving credit facility
Carrying value as at
December 31, 2019
Note
Level 1
Fair value as at December 31, 2019
Level 3
Level 2
11
11
$ 1,015,143
(575 )
$
— $
—
— $
—
1,018,854
—
Carrying value as at
December 31, 2018
Note
Level 1
Fair value as at December 31, 2018
Level 3
Level 2
11
11
$
910,970
26,760
$
— $
—
— $
27,375
909,903
—
Amounts receivable, cash and cash equivalents, tenant security deposits, amounts payable and accrued liabilities are carried at
amortized cost, which approximates fair value due to their short-term nature. Subsidiary redeemable units and DUIP are carried
at amortized cost, which approximates fair value as they are readily redeemable financial instruments.
Dream Industrial REIT 2019 Annual Report | 93
Recurring fair value measurements
Financial assets
Fair value of interest rate swaps
Financial liabilities
Fair value of interest rate swaps
Recurring fair value measurements
Financial assets
Fair value of interest rate swaps
Financial liabilities
Fair value of interest rate swaps
Note
30
30
Note
30
30
Carrying value as at
December 31, 2019
Level 1
Fair value as at December 31, 2019
Level 3
Level 2
$
1,422
$
— $
1,422 $
895
—
895
—
—
Carrying value as at
December 31, 2018
Level 1
Fair value as at December 31, 2018
Level 3
Level 2
$
1,543
$
— $
1,543 $
461
—
461
—
—
The Trust uses the following techniques in determining the fair value disclosed for the following financial instruments classified
as Level 1, 2 and 3:
Mortgages
The fair value of mortgages as at December 31, 2019 and December 31, 2018 are determined by discounting the expected cash
flows of each mortgage using market discount rates. The discount rates are determined using the Government of Canada
benchmark bond yield for instruments of similar maturity adjusted for the Trust’s specific credit risk. In determining the
adjustment for credit risk, the Trust considers market conditions, the fair value of the investment properties that the mortgages
are secured by and other indicators of the Trust’s creditworthiness. As a result, these measurements are classified as Level 3 in
the fair value hierarchy.
Revolving credit facility
Demand revolving credit facilities are variable rate debt priced at prevailing market interest rates plus a Trust-specific credit
spread. Because the interest rate on the facilities fluctuate with changes in market rates, the fair value of the credit facilities is
equivalent to amounts drawn on the facilities. Because the applicable interest rate includes an unobservable Trust-specific credit
spread, these are Level 3 measurements in the fair value hierarchy.
Interest rate swaps
The fair value measurement of the interest rate swaps was valued by qualified independent valuation professionals based on
the present value of the estimated future cash flows determined using observable yield curves. As a result, these measurements
are classified as Level 2 in the fair value hierarchy.
Note 33
SUBSEQUENT EVENTS
Subsequent to December 31, 2019, the Trust completed the following acquisitions in Canada, the Netherlands and Germany:
840 Trillium Drive, Kitchener, Ontario(2)
Berkshire portfolio, Kitchener, Ontario(2)
1995 Markham Road, Scarborough, Ontario(2)
Exportweg 20–22, Waddinxveen, Netherlands(3)
Het Sterrenbeeld 12–16, Den Bosch, Netherlands(3)
Robert-Bosch-Straße 7–9, Dietzenbach, Germany(3)
Heibloemweg 10, Helmond, Netherlands(3)
Total
Purchase price(1)
5,700
62,500
33,100
27,355
10,700
14,950
13,598
167,903
$
$
Date acquired
January 13, 2020
January 17, 2020
January 22, 2020
January 22, 2020
January 28, 2020
January 31, 2020
February 5, 2020
(1) Gross purchase price before adjustments and transaction costs.
(2) As at December 31, 2019, the Trust had a commitment to purchase the property.
(3) Acquisitions in the Netherlands and Germany were settled in euros and translated into Canadian dollars as at the respective transaction dates.
On February 12, 2020, the Trust completed a public offering of 16,859,000 REIT Units at a price of $13.65 per REIT Unit for gross
proceeds of $230,125, including 2,199,000 REIT Units issued pursuant to the exercise of the over-allotment option granted to
the underwriters.
Dream Industrial REIT 2019 Annual Report | 94
Management Team
Brian Pauls
Chief Executive Officer
Lenis Quan
Chief Financial Officer
Alexander Sannikov
Chief Operating Officer
Trustees
Michael J. Cooper2
Toronto, Ontario
President & Chief Responsible Officer
Dream Unlimited Corp.
Leerom SegalInd.
Toronto, Ontario
President & Chief Executive Officer
Klick Health
J. Michael KnowltonInd.,1,3
Toronto, Ontario
Corporate Director
Ben MulroneyInd.,3
Toronto, Ontario
Television Anchor & Producer
Brian Pauls2
Denver, Colorado
Chief Executive Officer
Dream Industrial REIT
Vicky SchiffInd.,1,3
Los Angeles, California
Co-Founder
Mosaic Real Estate Investors
Vincenza SeraInd.,2,4
Toronto, Ontario
Corporate Director
Sheldon WisemanInd.,1
Toronto, Ontario
Chief Executive Officer
Gistex Inc.
Legend:
Ind. Independent
1. Member of the Audit Committee
2. Member of the Executive Committee
3. Member of the Governance,
Compensation and
Environmental Committee
4. Chair of the Board of Trustees
Corporate Information
HEAD OFFICE
AUDITORS
PricewaterhouseCoopers LLP
PwC Tower, 18 York Street, Suite 2600
Toronto, Ontario M5J 0B2
CORPORATE COUNSEL
Osler, Hoskin & Harcourt LLP
Box 50, 1 First Canadian Place, Suite 6200
Toronto, Ontario M5X 1B8
STOCK EXCHANGE LISTING
The Toronto Stock Exchange
Listing Symbol: DIR.UN
For more information, please visit
dreamindustrialreit.ca
Dream Industrial
Real Estate Investment Trust
State Street Financial Centre
30 Adelaide Street East, Suite 301
Toronto, Ontario M5C 3H1
Phone: (416) 365-3535
Fax: (416) 365-6565
INVESTOR RELATIONS
Phone: (416) 365-3535
Toll free: 1 877 365-3535
Email: industrialinfo@dream.ca
Website: www.dreamindustrialreit.ca
TRANSFER AGENT
(for change of address, registration or
other unitholder enquiries)
Computershare Trust
Company of Canada
100 University Avenue, 8th Floor
Toronto, Ontario M5J 2Y1
Phone: (514) 982-7555 or
1 800 564-6253
Fax: (416) 263-9394 or
1 888 453-0330
Website: www.computershare.com
Email: service@computershare.com
DISTRIBUTION REINVESTMENT AND
UNIT PURCHASE PLAN
The purpose of our Distribution Reinvestment
and Unit Purchase Plan (“DRIP”) is to provide
unitholders with a convenient way of investing
in additional units without incurring transaction
costs such as commissions, service charges or
brokerage fees. By participating in the Plan,
you may invest in additional units in two ways:
Distribution reinvestment: Unitholders will have
cash distributions from Dream Industrial REIT
reinvested in additional units as and when cash
distributions are made. If you register in the
DRIP you will also receive a “bonus” distribution
of units equal to 3% of the amount of your cash
distribution reinvested pursuant to the Plan.
In other words, for every $1.00 of cash
distributions reinvested by you under the Plan,
$1.03 worth of units will be purchased.
Cash purchase: Unitholders may invest in
additional units by making cash purchases.
To enrol, contact:
Computershare Trust Company of Canada
100 University Avenue, 8th Floor
Toronto, Ontario M5J 2Y1
Attention: Dividend Reinvestment Services
or call their Customer Contact Centre at
1 800 564-6253 (toll free) or (514) 982-7555.
Corporate Office
State Street Financial Centre
30 Adelaide Street East, Suite 301
Toronto, Ontario M5C 3H1
Phone: 416.365.3535
Fax: 416.365.6565
Website: www.dreamindustrialreit.ca
Email: industrialinfo@dream.ca